Sunrise Realty Trust Inc.

11/10/2026 | Press release | Distributed by Public on 11/10/2026 16:06

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes and other information included in this Quarterly Report on Form 10-Q (the "Quarterly Report"). This discussion and analysis contains forward-looking statements that involve risks and uncertainties which could cause our actual results to differ materially from those anticipated in these forward-looking statements, including, but not limited to, risks and uncertainties discussed under the heading "Cautionary Note Regarding Forward-Looking Statements" in this Form 10-Q, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2025 (the "Annual Report on Form 10-K") and our other filings with the SEC.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report, filed by Sunrise Realty Trust, Inc. (the "Company," "SUNS," "we," "us," and "our"), and the information incorporated by reference herein, or made in other reports, filings with the SEC, and press releases contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend such statements to be covered by the safe harbor provisions contained therein. These forward-looking statements are based on our current intent, belief, expectations and views of future events. The forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results or performance, and may contain the words "believe," "anticipate," "expect," "estimate," "project," "could," "would," "will," "can," "continuing," "may," "aim," "intend," "ongoing," "plan," "predict," "potential," "should," "seeks," "likely to" or words or phrases of similar meaning. Specifically, this Quarterly Report includes forward-looking statements regarding the Merger (as defined below), including the benefits and financial and operational impact thereof; our portfolio and strategies for the growth of our commercial real estate lending business; our working capital, liquidity and capital requirements; potential state and federal legislative and regulatory matters; our expectations and estimates regarding certain tax, legal and accounting matters, including the impact on our financial statements and/or those of our borrowers; the amount, collectability and timing of cash flows, if any, from our loans; our expected ranges of originations and repayments; estimates relating to our ability to make distributions to our shareholders in the future; and our investment strategy.
These forward-looking statements reflect management's current views about future events, and are subject to risks, uncertainties and assumptions. Our actual results may differ materially from the future results and events expressed or implied by the forward-looking statements. Key factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following:
•our ability to identify a successful business and investment strategy and execute on our strategy;
•the ability of our Manager to locate suitable loan opportunities for us and to monitor and actively manage our portfolio and implement our investment strategy;
•our ability to successfully realize all of the expected benefits of the Merger or that such benefits may take longer to realize than expected;
•our ability to meet our expected ranges of originations and repayments;
•our ability to obtain our target mix of loan and collateral types with our expected ranges of yields;
•the allocation of loan opportunities to us by our Manager and our ability to close those loans;
•changes in general economic conditions, in our industry and in the commercial finance and commercial real estate markets;
•our future repurchases of our common stock under our Repurchase Program (as defined below);
•we have limited history of operating as an independent company, and our historical financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results;
•the state of the U.S. economy generally or in the specific geographic regions in which we operate, including as a result of the impact of natural disasters;
•the impact of a protracted decline in the liquidity of credit markets on our business;
•the amount, collectability and timing of our cash flows, if any, from our loans and other investments, including investments in real estate acquired through foreclosure and held or sold through joint ventures;
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•our ability to obtain and maintain competitive financing arrangements;
•our ability to achieve our expected leverage;
•changes in the value of our loans and other investments, including investments in real estate acquired through foreclosure and held or sold through joint ventures;
•losses that may be exacerbated due to the concentration of our portfolio in a limited number of loans and borrowers;
•our investment and underwriting process;
•the rates of default or recovery rates on our loans, including our ability to realize value from collateral and real estate acquired through foreclosure;
•the degree to which our hedging strategies may or may not protect us from interest rate volatility;
•the availability of investment opportunities in mortgage-related and real estate-related instruments and other securities, and our ability to reinvest proceeds from loan repayments, sales and other realizations in a timely manner and on favorable terms;
•interest rate mismatches between our loans and our borrowings used to fund such loans;
•the departure of any of the executive officers or key personnel supporting and assisting us from our Manager or its affiliates;
•impact of and changes in governmental regulations, tax law and rates, accounting guidance, tariffs and similar matters;
•the impact of a changing interest rate and inflation environment on our results of operations, cash flows and the market value of our loans;
•our ability to maintain our exemption from registration under the Investment Company Act of 1940 (the "Investment Company Act");
•our ability to qualify and maintain our qualification as a real estate investment trust (a "REIT") for U.S. federal income tax purposes;
•estimates relating to our ability to make distributions to our shareholders in the future;
•our understanding of our competition;
•market trends in our industry, interest rates, real estate values, the securities markets or the general economy;
•we may issue shares of preferred or common stock in the future, which could dilute your percentage ownership of SUNS;
•use of proceeds of our securities offerings; and
•litigation, including costs associated with prosecuting or defending claims and any adverse outcomes.
The above list of factors is not exhaustive or necessarily in order of importance.
Actual results may differ materially from those expressed in or implied by these forward-looking statements as a result of various risks and uncertainties, including, without limitation, those described below and elsewhere in this Quarterly Report, including in Part II, Item 1A, "Risk Factors," and in our Annual Report on Form 10-K, including in the section entitled "Risk Factors," as well as in our subsequent filings with the SEC. These forward-looking statements speak only as of the date of this Quarterly Report. Except as required by applicable law, we undertake no obligation to update or revise any forward-looking statements contained in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events.
Overview
SUNS is a Maryland corporation that was formed on August 28, 2023 and that made its first investment in January 2024. We are a real estate focused debt fund, actively pursuing opportunities to finance transitional commercial real estate projects located across the Southern U.S. We are an integral part of the platform of affiliated asset managers under the Tannenbaum Capital Group ("TCG").
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Our investment focus includes originating or acquiring loans backed by single assets or portfolios of assets that typically have (i) an investment hold size of approximately $15-100 million, secured by CRE assets, including transitional or construction projects, across diverse property types, (ii) a duration of approximately 2-5 years, (iii) interest rates that are determined periodically on the basis of a floating base lending rate (e.g., Secured Overnight Financing Rate ("SOFR")) plus a credit spread, (iv) a loan-to-value ("LTV") ratio of no greater than approximately 75% on an individual investment basis and (v) no more than approximately 75% LTV across the portfolio, in each case, at the time of origination or acquisition, and are led by experienced borrowers and well-capitalized sponsors with high quality business plans. Our loans typically feature origination fees and/or exit fees. We target a portfolio net internal rate of return ("IRR") in the low-teens, which we believe may increase to the mid-teens after including total interest and other revenue from the portfolio, including loans funded from drawing on our leverage, net of our interest expense from our portfolio lenders. We are also targeting a near to mid-term target capitalization of one-third equity, one-third secured debt availability and one-third unsecured debt. We do not expect to be fully drawn on our secured debt availability and, as a result, we are targeting an expected leverage ratio of 1.5:1 debt-to-equity.
We are an externally managed Maryland corporation and elected to be taxed as a REIT under Section 856 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with our taxable year ended December 31, 2024. We believe our organization and current and proposed method of operation will enable us to qualify as a REIT. However, no assurances can be given that our beliefs or expectations will be fulfilled, since qualification as a REIT depends on our continuing to satisfy numerous asset, income, distribution and other tests, which in turn depends, in part, on our operating results and ability to obtain financing. We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the Investment Company Act.
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act ("JOBS Act"), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period. As a result, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies, which may make comparison of our financials to those of other public companies more difficult.
We will remain an "emerging growth company" until the earliest to occur of the following: (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act, (b) in which we have total annual revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which generally means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of the prior fiscal year's second fiscal quarter; and (2) the date on which we have issued more than $1 billion in non-convertible debt securities during the prior three-year period.
Developments During the Quarter Ended September 30, 2026:
Updates to Our Loan Portfolio During the Quarter Ended September 30, 2026
On July 17, 2026, our senior term loan and a residential development project revolver for various residential development projects in Palm Beach Gardens, FL, were repaid in full. The outstanding principal balances of the senior term loan and residential development project revolver, on the date of repayment were approximately $31.6 million and $23.8 million, respectively. In connection with the repayment, the Company recognized approximately $0.2 million of default interest and breakage fees.
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Dividends Declared Per Share
During the three and nine months ended September 30, 2026 and 2025, we declared the following cash dividends:
Date Declared Payable to Shareholders of Record at the Close of Business on Payment Date Amount per Share Total Amount
March 4, 2025 March 31, 2025 April 15, 2025 $ 0.30 $ 4,026,448
June 13, 2025 June 30, 2025 July 15, 2025 0.30 4,026,353
September 15, 2025 September 30, 2025 October 15, 2025 0.30 4,026,296
2025 Period Subtotal $ 0.90 $ 12,079,097
March 10, 2026 March 31, 2026 April 15, 2026 $ 0.30 $ 4,055,897
June 15, 2026 June 30, 2026 July 15, 2026 0.30 4,055,220
September 15, 2026 September 30, 2026 October 15, 2026 0.30 4,054,755
2026 Period Subtotal $ 0.90 $ 12,165,872
Recent Developments
Loan Portfolio Recent Updates
In October 2026, we entered into a $2.1 million senior secured construction loan for an additional residential development in Park City, Utah, in which we have an existing participation interest as previously disclosed, which was fully funded at closing. The loan bears interest at rate of Prime plus 3.25%, and matures on December 1, 2028.
Sale of San Antonio Hotel Property
On October 9, 2026, the Lex Ave JV completed the sale of its San Antonio hotel property for a purchase price of $41.0 million, subject to customary closing adjustments and transaction costs. The transaction was financed through a combination of $9.0 million in cash paid by the buyer and $32.0 million in seller financing provided by the Company and its affiliated co-lender.
In connection with the sale, we and our affiliated co-lender provided $32.0 million of senior secured seller financing to the purchaser (the "Seller's Note"), of which our share was $20.8 million. We recorded a new loan with a principal balance of $20.8 million and an original issue discount of approximately $0.3 million. The Seller's Note bears interest at a fixed annual rate of 8.0% through July 31, 2027, increasing to 9.0% from August 1, 2027 through its initial maturity date of July 31, 2028. The borrower has a one-time option to extend the maturity date for an additional 12 months, through July 30, 2029, during which the interest rate increases to 10.0%.
As a result of the sale, we expect to recognize a loss of approximately $0.9 million, primarily attributable to working capital adjustments and the allocation of losses from the Lex Ave JV, partially offset by cash proceeds received in connection with delayed interest payments and loan modification fees collected.
Merger with Southern Realty Trust Inc.
As previously reported, on August 5, 2026, we entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Southern Realty Trust Inc. ("SRT") will merge with and into Sunrise Merger Sub, LLC, a Maryland limited liability company and a wholly owned subsidiary of SUNS ("Merger Sub"), with Merger Sub continuing as the surviving entity (the "Merger").
On October 23, 2026, we held a special meeting of the Company's shareholders (such meeting, the "Special Meeting"). At the Special Meeting, holders of our common stock approved the issuance of approximately 8.5 million shares of our common stock. Approval of the Merger by SRT shareholders was obtained at SRT's special meeting of shareholders on October 23, 2026.
On November 5, 2026, the Merger was completed pursuant to the terms of the Merger Agreement. At the effective time of the Merger (the "Merger Effective Time"), each outstanding share of SRT common stock, par value $0.01 per share, was converted into the right to receive (i) 1.45 shares of common stock and (ii) from SUNS Manager, an amount in cash per share equal to $0.05. No fractional shares of common stock were issued in connection with the Merger. As a result, we
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issued 8,464,977 shares of common stock as consideration for the Merger resulting in 21,980,828 shares of common stock issued and outstanding as of the Merger Effective Time.
As of the Merger Effective Time, the size of the Company's Board of Directors increased by one member (the "SRT Director Designee") and the SRT Director Designee was appointed to the Company's Board of Directors.
Supplemental Unaudited Pro Forma Financial Information
The following table presents selected unaudited pro forma combined financial information of the Company and SRT as of September 30, 2026, as if the Merger had occurred on such date:
As of
September 30, 2026
Pro forma outstanding principal $ 393,071,129
Total pro forma loan commitments $ 478,584,300
Less: pro forma drawn commitments (392,797,474)
Total pro forma undrawn commitments $ 85,786,826
Amended and Restated Management Agreement
At the Merger Effective Time, we and SUNS Manager entered into an Amended and Restated Management Agreement (the "A&R Management Agreement"). The A&R Management Agreement supersedes and replaces the existing Management Agreement by and between us and SUNS Manager, dated February 22, 2024 (the "Existing Management Agreement").
The A&R Management Agreement includes the following terms and provisions:
•reduces the incentive compensation hurdle rate from 2.0% per fiscal quarter and 8.0% per fiscal year under the Existing Management Agreement to 1.75% per fiscal quarter and 7.0% per fiscal year, respectively;
•reduces SUNS Manager's incentive compensation from 20% to 17.5% of applicable Core Earnings (as defined therein) and revises the related catch-up threshold from 166 2/3% to 153.85% of the hurdle amount;
•removes Section 15 (internalization of the SUNS Manager);
•provides for an initial term of one year from the effective date of the A&R Management Agreement, after which the A&R Management Agreement will renew automatically for successive one-year periods unless earlier terminated or not renewed in accordance with its terms; and
•provides for a temporary reduction in the base management fee of $250,000 per quarter for each of the first four quarters following the effective date of the A&R Management Agreement, beginning with the first full fiscal quarter thereafter.
Stub Period Dividend
On October 23, 2026, pursuant to the Merger Agreement, the Company's Board of Directors authorized a prorated dividend on the Company's common stock in the amount of $0.09 per share, or approximately $1.2 million (the "Stub Period Dividend") for the calendar quarter in which the closing of the Merger occurs. The Stub Period Dividend was paid on November 5, 2026 to shareholders of record at the close of business on November 2, 2026.
Stock Repurchase Program
On October 12, 2026, the Company's Board of Directors authorized a stock repurchase program pursuant to which, effective as of the Merger Effective Time, the Company may repurchase up to $20.0 million of the Company's common stock through December 31, 2027 (the "Repurchase Program"). No shares were repurchased under the Repurchase Program as of the date of this report. The timing and amount of repurchases will depend on market conditions, share price, liquidity and other factors. The Repurchase Program does not obligate the Company to repurchase any specific number of shares or dollar amount and may be modified, suspended or terminated at any time.
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Revolving Credit Facility Amendment
On November 5, 2026, the Company entered into Amendment Number Eight to the Revolving Credit Facility ("Amendment Number Eight"), by and among the Company and certain subsidiaries, as borrowers, the lenders party thereto, and East West Bank, as administrative agent, which, among other things, in connection with the Merger and other transactions contemplated therein: (i) provided the administrative agent's and lenders' consent to the Merger and the other transactions contemplated therein; (ii) facilitated the entry of Merger Sub as a guarantor under the Amendment Number Eight and related loan documents; (iii) expanded the eligible assets for inclusion in the borrowing base; and (iv) required the Company to pay a one-time amendment fee.
Key Financial Measures and Indicators
As a commercial real estate finance company, we believe the key financial measures and indicators for our business are Distributable Earnings (as defined below), book value per share and dividends declared per share.
Book Value Per Share
We believe that book value per share is helpful to shareholders in evaluating our growth as we scale our equity capital base and continue to invest in our target investments. The book value per share of our common stock as of September 30, 2026 and December 31, 2025 was approximately $13.39 and $13.56, respectively.
Non-GAAP Metrics
Distributable Earnings
In addition to using certain financial metrics prepared in accordance with GAAP to evaluate our performance, we also use Distributable Earnings to evaluate our performance, excluding the effects of certain transactions and GAAP adjustments we believe are not necessarily indicative of our current loan activity and operations. Distributable Earnings is a measure that is not prepared in accordance with GAAP. We use these non-GAAP financial measures both to explain our results to shareholders and the investment community and in the internal evaluation and management of our businesses. Our management believes that these non-GAAP financial measures and the information they provide are useful to investors since these measures permit investors and shareholders to assess the overall performance of our business using the same tools that our management uses to evaluate our past performance and prospects for future performance. The determination of Distributable Earnings is substantially similar to the determination of Core Earnings under our Management Agreement, provided that Core Earnings is a component of the calculation of any Incentive Compensation earned under the Management Agreement for the applicable time period. Thus, Core Earnings is calculated without giving effect to Incentive Compensation expense, while the calculation of Distributable Earnings accounts for any Incentive Compensation earned for such time period.
We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding (i) stock-based compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss); provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) provision for (reversal of) current expected credit losses, (v) TRS (income) loss, net of any dividends received from TRS and (vi) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors.
We believe providing Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to shareholders in assessing the overall performance of our business. As a REIT, we are required to distribute at least 90% of our annual REIT taxable income, subject to certain adjustments, and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of such taxable income. Given these requirements and our belief that dividends are generally one of the principal reasons that shareholders invest in our common stock, we generally intend to attempt to pay dividends to our shareholders in an amount at least equal to such REIT taxable income, if and to the extent authorized by our Board of Directors. Distributable Earnings is one of many factors considered by our Board of Directors in authorizing dividends and, while not a direct measure of net taxable income, over time, the measure can be considered a useful indicator of our dividends.
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Distributable Earnings is a non-GAAP financial measure and should not be considered as a substitute for GAAP net income. We caution readers that our methodology for calculating Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our reported Distributable Earnings may not be comparable to similar measures presented by other REITs.
The following table provides a reconciliation of GAAP net income to Distributable Earnings for the three and nine months ended September 30, 2026 and 2025:
Three months ended
September 30, 		Nine months ended
September 30,
2026 2025 2026 2025
Net income $ 2,883,952 $ 4,054,959 $ 10,213,327 $ 10,512,710
Adjustments to net income:
Stock-based compensation expense 276,114 260,307 943,560 762,994
Depreciation and amortization - - - -
Unrealized (gains) losses, or other non-cash items 238,735 - 238,735 -
Provision for (reversal of) current expected credit losses (184,755) (193,865) 432,776 392,276
TRS (income) loss - - - -
One-time events pursuant to changes in GAAP and certain non-cash charges - - - -
Distributable earnings $ 3,214,046 $ 4,121,401 $ 11,828,398 $ 11,667,980
Basic weighted average shares of common stock outstanding 13,341,545 13,247,030 13,330,328 12,571,091
Distributable earnings per basic weighted average share $ 0.24 $ 0.31 $ 0.89 $ 0.93
Factors Impacting our Operating Results
The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest margin, the market value of our assets and the supply of, and demand for, commercial real estate debt and other financial assets in the marketplace. Our net interest margin, which includes the accretion and amortization of OID, is recognized based on the contractual rate and the outstanding principal balance of the loans we originate. Interest rates will vary according to the type of loan, conditions in the financial markets, creditworthiness of our borrowers, competition and other factors, some of which cannot be predicted with any certainty. Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by our borrowers.
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Results of Operations for the three and nine months ended September 30, 2026 and 2025
The following table summarizes our consolidated results of operations for the three and nine months ended September 30, 2026 and 2025:
Three months ended
September 30, 		Nine months ended
September 30,
2026 2025 2026 2025
Revenue
Interest income $ 7,973,625 $ 7,494,713 $ 26,811,006 $ 19,205,915
Interest expense (2,223,556) (1,438,547) (7,936,974) (2,857,918)
Net interest income 5,750,069 6,056,166 18,874,032 16,347,997
Expenses
Management and incentive fees 690,547 1,072,274 3,204,678 1,761,414
General and administrative expenses 909,887 654,253 2,462,769 2,067,336
Stock-based compensation 276,114 260,307 943,560 762,994
Professional fees 218,178 208,238 693,063 851,267
Merger costs 862,448 - 862,448 -
Total expenses 2,957,174 2,195,072 8,166,518 5,443,011
Reversal of (provision for) current expected credit losses 184,755 193,865 (432,776) (392,276)
Other income 286,578 - 286,578 -
Equity in losses of unconsolidated real estate joint venture (271,022) - (238,735) -
Net income before income taxes 2,993,206 4,054,959 10,322,581 10,512,710
Income tax expense 109,254 - 109,254 -
Net income $ 2,883,952 $ 4,054,959 $ 10,213,327 $ 10,512,710
Net income. Our net income for the three and nine months ended September 30, 2026, was approximately $2.9 million and $10.2 million, or $0.21 and $0.75 per basic weighted average common share, respectively, compared to net income of approximately $4.1 million and $10.5 million, or $0.30 and $0.82 per basic weighted average common share, respectively, for the three and nine months ended September 30, 2025.
Interest income. Interest income increased approximately $0.5 million, or 6.4%, for the three months ended September 30, 2026, as compared to the three months ended September 30, 2025. Interest income increased approximately $7.6 million, or 39.6%, for the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. The increase reflects a higher average investment balance driven by increased capital deployment. In addition, we recognized approximately $1.2 million of repayment premium income related to the early repayment of a $45.0 million secured mortgage loan in March 2026.
Interest expense. Interest expense increased approximately $0.8 million and $5.1 million during the three and nine months ended September 30, 2026, respectively, as compared to the corresponding periods in 2025. The increases were primarily attributable to higher average outstanding borrowings under our revolving credit facilities, particularly our SRTF Credit Facility, and higher amortization of deferred financing costs, partially offset by lower interest rates on our Revolving Credit Facility.
Management and incentive fees. Management and incentive fees decreased by approximately $0.4 million and increased by approximately $1.4 million for the three and nine months ended September 30, 2026, respectively, compared to the corresponding periods in 2025.
Base management fees were approximately $0.7 million and $2.1 million for the three and nine months ended September 30, 2026, respectively, compared to approximately $0.7 million and $1.4 million for the corresponding periods in 2025. The increase in base management fees for the nine-month period was primarily attributable to the waiver of approximately $0.6 million of base management fees during the nine months ended September 30, 2025.
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No incentive fees were incurred during the three months ended September 30, 2026, compared to approximately $0.4 million during the corresponding period in 2025. Incentive fees for the nine months ended September 30, 2026 were approximately $1.1 million, compared to approximately $0.4 million for the corresponding period in 2025, net of approximately $0.5 million in fee waivers associated with the January 2025 offering.
General and administrative expenses. General and administrative expenses increased $255.6 thousand and $395.4 thousand during the three and nine months ended September 30, 2026, respectively, compared to the three and nine months ended September 30, 2025, primarily driven by higher reimbursable payroll and bonus costs payable to the Manager under the Management Agreement.
Professional fees. Professional fees remained relatively consistent during the three months ended September 30, 2026, and decreased approximately $0.2 million during the nine months ended September 30, 2026, compared to the corresponding periods in 2025. The year-to-date decrease was primarily attributable to higher professional fees incurred during the first quarter of 2025 in connection with our first annual Form 10-K and proxy statement filings following our transition to a public company.
Merger Costs. Merger costs were approximately $0.9 million for both the three and nine months ended September 30, 2026, primarily consisting of legal, accounting and other professional fees incurred in connection with the Merger. No comparable Merger costs were incurred during the corresponding periods in 2025.
Reversal of (Provision for) current expected credit losses. The reversal of current expected credit losses decreased approximately $9.1 thousand during the three months ended September 30, 2026, compared to the same period in 2025. For the nine months ended September 30, 2026, the provision for current expected credit losses increased approximately $40.5 thousand compared to the same period in 2025. As of September 30, 2026, our CECL Reserve was approximately $0.9 million, or 0.36% of total loans held at carrying value of approximately $255.6 million. The CECL Reserve consisted of approximately $0.8 million related to outstanding loan balances and approximately $0.1 million related to unfunded loan commitments. The liability for unfunded commitments represents expected credit losses on the unfunded portion of loan commitments over the contractual period during which we are obligated to extend credit. In estimating this liability, we consider the likelihood of funding and the expected credit losses associated with such funding. We continuously evaluate the credit quality of our loan portfolio by assessing the risk factors associated with each loan.
Other income. On September 29, 2026, the Lex Ave JV entered into a second amendment to the SA Hotel Sale Agreement, extending the closing date to October 9, 2026. In consideration for the extension, the purchaser agreed to pay approximately $0.4 million in delayed interest on behalf of us and our affiliated co-lender. Other income for the three and nine months ended September 30, 2026 represents our 65.0% share of the delayed interest payment received.
Income tax expense. For the three and nine months ended September 30, 2026, we recognized approximately $0.1 million of income tax expense related to Texas state franchise taxes. No corresponding expense was recognized during the three and nine months ended September 30, 2025. Although we generally are not subject to U.S. federal income taxes on income distributed to shareholders as a REIT, we remain subject to certain state and local taxes, including Texas franchise taxes.
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Loan Portfolio
The table below summarizes our total loan portfolio as of September 30, 2026, unless otherwise specified.
Loan Type Location Original Funding Date Loan Maturity Current Commitments as of 09/30/2026 % of Total Principal Balance as of 09/30/2026 Cash Interest Rate PIK Fixed/
Floating 		Amortization During Term
YTM(1)
Senior mortgage loans:
Residential Fort Lauderdale, FL
(2)
11/1/2024 12/30/2026 $ 30,000,000 9.6% $ 23,116,784 11.5% N/A Floating No 15%
Hospitality Austin, TX 12/12/2024 12/11/2027 32,000,000 10.2% 32,000,000 9.5% N/A Floating No 11%
Residential Aventura, FL 1/27/2025 1/27/2027 30,750,872 9.8% 30,750,872 9.0% N/A Floating No 11%
Net Leased Tenant New Orleans, LA
(2)
1/30/2025 1/30/2028 44,000,000 14.0% 31,139,139 10.1% N/A Floating No 11%
Residential Park City, UT 6/11/2025 8/1/2027 9,250,000 2.9% 5,952,407 11.3% N/A Floating No 13%
Residential Miami, FL 9/26/2025 9/25/2028 35,000,000 11.1% 27,302,824 8.7% N/A Floating No 10%
Industrial Doral, FL 10/6/2025 10/6/2027 3,067,365 1.0% 2,931,041 10.1% N/A Floating No 14%
Industrial West Palm Beach, FL 10/16/2025 10/16/2027 16,240,000 5.2% 5,929,506 10.1% N/A Floating No 14%
Retail Houston, TX 10/24/2025 10/24/2028 30,000,000 9.6% 23,200,435 9.7% N/A Floating No 11%
Subordinate debt:
Residential Miami, FL 11/15/2024 11/15/2027 13,000,000 4.1% 12,104,993 13.3% N/A Fixed No 15%
Residential Miami, FL 3/21/2025 12/13/2028 25,761,225 8.2% 20,596,466 13.5% 1.0% Floating No 15%
Hospitality Diversified 2/13/2026 2/13/2029 44,877,025 14.3% 41,905,036 12.2% N/A Floating No 13%
Subtotal(3)
$ 313,946,487 100.0% $ 256,929,503 10.6% 0.1% 12%
Wtd
Average
(1)Estimated YTM includes a variety of fees and features that affect the total yield, which may include, but is not limited to, OID, exit fees, prepayment fees, unused fees and contingent features. OID is recognized as a discount to the funded loan principal and is accreted to income over the term of the loan.
The estimated YTM calculations require management to make estimates and assumptions, including, but not limited to, the timing and amounts of loan draws on delayed draw loans, the timing and collectability of exit fees, the probability and timing of prepayments and the probability of contingent features occurring. For example, certain credit agreements contain provisions pursuant to which certain interest rates and fees earned by us under such credit agreements will decrease upon the satisfaction of certain specified criteria which we believe may improve the risk profile of the applicable borrower. To be conservative, we have not assumed any prepayment penalties or early payoffs in our estimated YTM calculation. Estimated YTM is based on current management estimates and assumptions, which may change. Estimated YTM is calculated using the interest rate as of September 30, 2026 applied through maturity. Actual results could differ from those estimates and assumptions.
(2)If the Company holds both the A-note and B-note, the loan is categorized as a senior mortgage loan.
(3)The interest subtotal rate is a weighted average rate.
Loans Held for Investment at Carrying Value
As of September 30, 2026 and December 31, 2025, our portfolio included 12 and 16 loans held at carrying value, respectively. The aggregate originated commitment under these loans was approximately $313.9 million and $420.7 million, respectively, and outstanding principal was approximately $256.9 million and $305.5 million, respectively, as of September 30, 2026 and December 31, 2025. During the nine months ended September 30, 2026, we funded approximately $132.7 million of new loans and additional principal on existing loans and had approximately $155.0 million of principal repayments of loans held at carrying value. As of September 30, 2026 and December 31, 2025, approximately 95.3% and 96.4%, respectively, of our loans held at carrying value had floating interest rates. As of September 30, 2026, these floating benchmark rates included one-month SOFR quoted at 3.91% and subject to a weighted average floor of 3.87% and U.S. prime rate subject to a weighted average floor of 8.00% and quoted at 7.00% based on outstanding principal.
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The following tables summarize our loans held at carrying value as of September 30, 2026 and December 31, 2025:
As of September 30, 2026
Outstanding
Principal(1)
Original
Issue
Discount
Carrying
Value(1)
Weighted
Average
Remaining Life
(Years)(2)
Senior mortgage loans(3)(4)
$ 182,323,008 $ (943,288) $ 181,379,720 1.2
Subordinate debt 74,606,495 (388,589) 74,217,906 2.1
Total loans held at carrying value $ 256,929,503 $ (1,331,877) $ 255,597,626 1.4
As of December 31, 2025
Outstanding
Principal(1)
Original
Issue
Discount
Carrying
Value(1)
Weighted
Average
Remaining Life
(Years)(2)
Senior mortgage loans(3)(4)
$ 282,678,920 $ (2,803,998) $ 279,874,922 1.9
Subordinate debt 22,834,265 (34,444) 22,799,821 2.4
Total loans held at carrying value $ 305,513,185 $ (2,838,442) $ 302,674,743 1.9
(1)The difference between the carrying value and the outstanding principal amount of the loans consists of unaccreted OID and loan origination costs.
(2)Weighted average remaining life is calculated based on the carrying value of each respective group of loans as of September 30, 2026 and December 31, 2025.
(3)Senior mortgage loans include senior loans that also have a contiguous subordinate loan because as a whole, the expected credit quality of the subordinate loan is more similar to that of a senior loan.
(4)If the Company holds both the A-note and B-note, the loan is categorized as a senior mortgage loan.
The following table presents changes in loans held at carrying value as of and for the nine months ended September 30, 2026:
Principal Original Issue
Discount 		Carrying Value
Total loans held at carrying value at December 31, 2025 $ 305,513,185 $ (2,838,442) $ 302,674,743
New fundings 119,927,910 (903,136) 119,024,774
Interest drawn on loans 12,728,970 - 12,728,970
Accretion of original issue discount and premium, net - 2,242,868 2,242,868
Loan repayments (154,990,687) - (154,990,687)
Foreclosure and contribution to real estate joint venture (26,379,740) 166,833 (26,212,907)
PIK interest 129,865 - 129,865
Total loans held at carrying value at September 30, 2026 $ 256,929,503 $ (1,331,877) $ 255,597,626
Collateral Overview
Our loans are secured by various types of assets of our borrowers, including real property and certain personal property and other assets to the extent permitted by applicable laws and the regulations governing our borrowers.
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Our debt investments will primarily be secured by real estate assets that are expected to be diversified across asset classes, including high quality residential (including multi-family, condominiums and single-family residential communities), retail, office, hospitality, industrial, mixed-use and specialty-use real estate.
Upon default of a loan, we may seek to sell the loan to a third-party or have an affiliate or a third party work with the borrower to have the borrower sell collateral securing the loan to a third party or institute a foreclosure proceeding to have such collateral sold, in each case, to generate funds towards the payoff of the loan. While we believe that the appraised value of any real estate assets or other collateral securing our loans may impact the amount of the recovery in each such scenario, the amount of any such recovery from the sale of such real estate or other collateral may be less than the appraised value of such collateral and the sale of such collateral may not be sufficient to pay off the remaining balance on the defaulted loan. If we do not or cannot sell a foreclosed property, we would then come to own and operate it as "real estate owned" ("REO"). During the nine months ended September 30, 2026, we acquired one REO asset through foreclosure proceedings and contemporaneously contributed such asset to the Lex Ave JV (see Note 6).
We may pursue a sale of a defaulted loan if we believe that a sale would yield higher proceeds or that a sale could be accomplished more quickly than a foreclosure proceeding while yielding proceeds comparable to what would be expected from a foreclosure sale. To the extent that we determine that the proceeds are more likely to be maximized through instituting a foreclosure sale or through taking title to the underlying collateral, we will be subject to the rules and regulations under state law that govern foreclosure sales. However, we can provide no assurances that a third party would buy such loans or that the sales price of such loans would be sufficient to recover the outstanding principal balance, accrued interest, and fees.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our shareholders and meet other general business needs. We use significant cash to purchase our target investments, repay principal and interest on our borrowings, make distributions to our shareholders and fund our operations. The sources of financing for our target investments are described below.
Our primary sources of cash generally consist of debt financing, including borrowings under a senior secured revolving credit facility (the "Revolving Credit Facility") and an unsecured revolving credit facility (the "SRTF Credit Facility"), the net proceeds of future debt or equity offerings, including in connection with our ATM Program, payments of principal and interest we receive on our portfolio of assets, and cash generated from our operating results.
As of September 30, 2026 and December 31, 2025, all of our cash was unrestricted and totaled approximately $6.0 million and $6.4 million, respectively.
As of September 30, 2026, we believe that our cash on hand, capacity available under the Revolving Credit Facility, SRTF Credit Facility and cash flows from operations will be sufficient to satisfy the operating requirements of our business through at least the next twelve months.
Capital Markets
Given the nature of our business, we constantly explore both the public and private capital markets to raise capital, subject to market and other considerations.
There were no capital markets transactions completed during the nine months ended September 30, 2026.
Our registration statement on Form S-3 (File No. 333-289188) (the "Shelf Registration Statement") became effective on August 6, 2025 and allows us to offer and sell, from time to time, up to $500.0 million of our securities, including common stock, preferred stock, debt securities, warrants and rights (including as part of a unit) to purchase shares of our common stock or preferred stock. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering. We may also access liquidity through our at-the-market offering program (the "ATM Program"), established in August 2025, pursuant to which we may offer and sell, from time to time, up to $50.0 million of our common stock. No shares were sold under the ATM Program during the nine months ended September 30, 2026.
On September 3, 2025, we also established a dividend reinvestment plan (the "DRIP"). The DRIP allows shareholders to reinvest all or a portion of their cash dividends in additional shares of our common stock (which shares, at our option, are
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either newly issued directly from us or purchased by the plan administrator in the open market). A total of 1,000,000 shares of common stock has been registered for issuance under the DRIP. No shares were issued under the DRIP during the nine months ended September 30, 2026.
We intend to raise future equity capital and issue debt securities in order to fund our future investments in loans.
Revolving Credit Facility
On November 6, 2024, we entered into the Revolving Credit Facility, which contained an initial aggregate commitment of $50.0 million, which may be borrowed, repaid and redrawn (subject to a borrowing base based on eligible loan obligations held by us and subject to the satisfaction of other conditions provided under the Revolving Credit Agreement). During the year ended December 31, 2025, we entered into a series of amendments to the Revolving Credit Facility that, among other things, increased the aggregate commitment from $50.0 million to $140.0 million. The amount of total commitments under the Revolving Credit Facility may be increased to up to $200.0 million in aggregate, subject to available borrowing base and lenders' commitment to provide additional commitments.
In February 2026, we entered into Amendment Number Seven to the Revolving Credit Facility ("Amendment Number Seven"), by and among the Company and certain subsidiaries, as borrowers, the lenders party thereto, and East West Bank as administrative agent, which, among other things (i) facilitated the entry of an additional lender; (ii) increased the aggregate commitment by $25.0 million, for a total maximum revolver usage of $165.0 million; and (iii) revised the required consent from certain lenders to advance additional funds under the Revolving Credit Agreement.
In November 2026, we entered into Amendment Number Eight to the Revolving Credit Facility in connection with the Merger and other transactions contemplated therein. See Notes 16 and 17 included in the consolidated financial statements for additional information.
As amended, the Revolving Credit Facility requires us to, among other things: (i) maintain liquidity equal to the greater of $5 million and an amount equal to 10% of the outstanding obligations thereunder so long as we maintain at least $5 million in qualified cash, (ii) maintain a quarterly debt service coverage ratio of at least 1.50 to 1.0 and (iii) maintain a leverage ratio of not more than 3.25x measured as of the end of each fiscal quarter.
As of September 30, 2026, we had $63.7 million of outstanding borrowings under the Revolving Credit Facility and $101.3 million availability under our Revolving Credit Facility, which may be borrowed, repaid and redrawn (subject to a borrowing base based on eligible loan obligations held by us and subject to the satisfaction of other conditions provided under the Revolving Credit Agreement).
To the best of our knowledge, as of September 30, 2026, we were in compliance in all material respects with all covenants contained in our Revolving Credit Agreement.
SRTF Credit Facility
On December 9, 2024, we entered into the SRTF Credit Facility, which provides for an unsecured revolving credit facility with a $75.0 million commitment, which may be borrowed, repaid and redrawn, subject to a draw fee and the other conditions provided in the SRTF Credit Agreement.
As of September 30, 2026, we had $33.1 million of outstanding borrowings under the SRTF Credit Facility and $41.9 million availability under our SRTF Credit Facility.
Other Credit Facilities, Warehouse Facilities and Repurchase Agreements
In the future, we may also use other sources of financing to fund the origination or acquisition of our target investments, including other credit facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized and may involve one or more lenders. We expect that these facilities will typically have maturities ranging from two to five years and may accrue interest at either fixed or floating rates.
Debt Service
As of September 30, 2026, we believe that our cash on hand, capacity available under our Revolving Credit Facility and SRTF Credit Facility, and cash flows from operations will be sufficient to service our outstanding debt during the next twelve months.
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Cash Flows
The following table sets forth changes in cash and cash equivalents for the nine months ended September 30, 2026 and 2025:
Nine months ended
September 30,
2026 2025
Net cash used in operating activities $ (1,065,048) $ (1,893,601)
Net cash provided by (used in) investing activities 38,749,671 (105,558,522)
Net cash used in financing activities (38,087,803) (71,627,279)
Change in cash and cash equivalents $ (403,180) $ (179,079,402)
Net Cash Used in Operating Activities
Net cash used in operating activities during the nine months ended September 30, 2026 was approximately $1.1 million, compared to approximately $1.9 million during the nine months ended September 30, 2025. The decrease in cash used of approximately $0.8 million period over period was primarily due to an increase in net interest income, partially offset by higher management and incentive fees paid.
Net Cash Provided by (Used in) Investing Activities
Net cash provided by investing activities during the nine months ended September 30, 2026 was approximately $38.7 million, compared to $105.6 million of cash used during the nine months ended September 30, 2025. The decrease in net cash used of approximately $144.3 million was primarily due to an increase in principal repayments on loans of approximately $112.3 million, a decrease in issuance and fundings on loans of approximately $29.2 million, and $4.0 million of distributions from the Lex Ave JV, partially offset by $1.3 million of contributions to the Lex Ave JV.
Net Cash Used in Financing Activities
Net cash used in financing activities during the nine months ended September 30, 2026 was approximately $38.1 million, compared to $71.6 million during the nine months ended September 30, 2025. The decrease in cash used in financing activities of approximately $33.5 million was primarily due to a decrease of $113.7 million in repayments on the revolving credit facilities, partially offset by a $7.2 million decrease in borrowings on the revolving credit facilities and a decrease of $72.6 million from offering proceeds relating to the January 2025 Offering.
Contractual Obligations, Other Commitments, and Off-Balance Sheet Arrangements
Our contractual obligations as of September 30, 2026 are as follows:
As of September 30, 2026
Less than
1 year 		1-3 years 3-5 years More than
5 years 		Total
Unfunded commitments $ 10,180,809 $ 47,038,602 $ - $ - $ 57,219,411
Total $ 10,180,809 $ 47,038,602 $ - $ - $ 57,219,411
As of September 30, 2026, all unfunded commitments were related to our total loan commitments and were available for funding in less than three years.
We may enter into certain contracts that may contain a variety of indemnification obligations. The maximum potential future payment amounts we could be required to pay under these indemnification obligations may be unlimited.
Off-balance sheet commitments consist of unfunded commitments on delayed draw loans. Other than as set forth in this Quarterly Report, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose entities or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment to provide, nor do we intend to provide, additional funding to any such entities.
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Dividends
We elected to be taxed as a REIT for U.S. federal income tax purposes, commencing with the taxable year ending December 31, 2024, and, as such, intend to annually distribute to our shareholders at least 90% of our REIT taxable income, prior to the deduction for dividends paid and excluding our net capital gain. If we distribute less than 100% of our REIT taxable income in any tax year (taking into account any distributions made in a subsequent tax year under Sections 857(b)(9) or 858 of the Code), we will pay tax at regular corporate rates on that undistributed portion. Furthermore, if we distribute less than the sum of (i) 85% of our ordinary income for the calendar year, (ii) 95% of our capital gain net income for the calendar year and (iii) any undistributed shortfall from our prior calendar year (the "Required Distribution") to our shareholders during any calendar year (including any distributions declared by the last day of the calendar year but paid in the subsequent year), then we are required to pay non-deductible excise tax equal to 4% of any shortfall between the Required Distribution and the amount that was actually distributed. Any of these taxes would decrease cash available for distribution to our shareholders. The 90% distribution requirement does not require the distribution of net capital gains. However, if we elect to retain any of our net capital gain for any tax year, we must notify our shareholders and pay tax at regular corporate rates on the retained net capital gain. The shareholders must include their proportionate share of the retained net capital gain in their taxable income for the tax year, and they are deemed to have paid the REIT's tax on their proportionate share of the retained capital gain. Furthermore, such retained capital gain may be subject to the nondeductible 4% excise tax. If we determine that our estimated current year taxable income (including net capital gain) will be in excess of estimated dividend distributions (including capital gains dividends) for the current year from such income, we will accrue excise tax on a portion of the estimated excess taxable income as such taxable income is earned.
To the extent that our cash available for distribution is less than the amount required to be distributed under the REIT provisions of the Code, we may be required to fund distributions from working capital or through equity, equity-related or debt financings or, in certain circumstances, asset sales, as to which our ability to consummate transactions in a timely manner on favorable terms, or at all, cannot be assured, or we may make a portion of the Required Distribution in the form of a taxable stock distribution or distribution of debt securities.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies and estimates from what was previously disclosed in our Annual Report on Form 10-K. Many of these accounting policies require judgment and the use of estimates and assumptions when they are applied in the preparation of our financial statements. On a quarterly basis, we evaluate these estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances. These estimates are subject to change in the future if underlying assumptions or factors change. Certain accounting policies, while significant, may not require the use of estimates.
Sunrise Realty Trust Inc. published this content on November 10, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 10, 2026 at 22:06 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]