suns-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-41971

SUNRISE REALTY TRUST, INC.

(Exact name of registrant as specified in its charter)


Maryland						93-3168928
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

525 Okeechobee Blvd., Suite 1650, West Palm Beach, FL 33401

(Address of principal executive offices) (Zip Code)

(561) 510-2390

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	SUNS	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒


Class			Outstanding at August 14, 2024
Common stock, $0.01 par value per share			6,925,395


Part I.	Financial Information
Item 1.	Financial Statements	1
	Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023	1
	Statements of Operations for the three and six months ended June 30, 2024 (unaudited)	2

	Statements of Shareholder's Equity for the three and six months ended June 30, 2024 (unaudited)	3
	Statement of Cash Flows for the six months ended June 30, 2024 (unaudited)	4
	Notes to the Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	27
Part II.	Other Information	27
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29


	As of
	June 30, 2024		December 31, 2023
	(unaudited)
Assets


Loans held for investment at carrying value, net	$	37,593,224	$	—

Current expected credit loss reserve	(37,421)		—
Loans held for investment at carrying value, net of current expected credit loss reserve	37,555,803		—

Cash and cash equivalents	11,285,046		31,244,622

Interest receivable	585,227		—

Prepaid expenses and other assets	55,000		—
Total assets	$	49,481,076	$	31,244,622

Liabilities


Due to affiliate	$	2,274	$	—

Current expected credit loss reserve	34,433		—


Accounts payable and other liabilities	533,659		10,000



Total liabilities	570,366		10,000
Commitments and contingencies (Note 5)
Shareholder’s equity
Member's Equity	—		31,234,622
Preferred stock, par value $0.01 per share, 10,000 and 0 shares authorized at June 30, 2024 and December 31, 2023, respectively, and 0 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively	—		—
Common stock, par value $0.01 per share, 50,000,000 and 0 shares authorized at June 30, 2024 and December 31, 2023, respectively, and 100 and 0 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively	1		—
Additional paid-in capital	45,399,999		—

Accumulated earnings (deficit)	3,510,710		—
Total shareholder’s equity	48,910,710		31,234,622

Total liabilities and shareholder’s equity	$	49,481,076	$	31,244,622


	Three months ended June 30, 2024		Six months ended June 30, 2024

Revenue
Interest income	$	1,979,576	$	4,005,882

Total revenue	1,979,576		4,005,882
Expenses


General and administrative expenses	21,025		21,568

Professional fees	372,954		636,372
Total expenses	393,979		657,940
(Increase) decrease in provision for current expected credit losses	(71,854)		(71,854)





Net income	$	1,513,743	$	3,276,088

Earnings per common share:
Basic and diluted earnings per common share (in dollars per share)	$	0.22	$	0.48


Weighted average number of common shares outstanding:
Basic and diluted weighted average shares of common stock outstanding (in shares)	6,889,032		6,889,032


Three months ended June 30, 2024
	Member's Equity		Preferred Stock		Common Stock			Additional Paid-In Capital		Accumulated Earnings (Deficit)		Total Shareholder's Equity
					Shares	Amount
Balance as of March 31, 2024	$	—	$	—	100	$	1	$	45,399,999	$	1,996,967	$	47,396,967








Net income	—		—		—	—		—		1,513,743		1,513,743
Balance as of June 30, 2024	$	—	$	—	100	$	1	$	45,399,999	$	3,510,710	$	48,910,710


Six months ended June 30, 2024
	Member's Equity		Preferred Stock		Common Stock			Additional Paid-In Capital		Accumulated Earnings (Deficit)		Total Shareholder's Equity
					Shares	Amount
Balance as of December 31, 2023	$	31,234,622	$	—	—	$	—	$	—	$	—	$	31,234,622
Capital Contributions	—		—		—	—		17,000,000		—		17,000,000
Distributions	—		—		—	—		(2,600,000)		—		(2,600,000)
Effect of corporate conversion on member's equity	(31,234,622)		—		100	1		30,999,999		234,622		—





Net income	—		—		—	—		—		3,276,088		3,276,088
Balance as of June 30, 2024	$	—	$	—	100	$	1	$	45,399,999	$	3,510,710	$	48,910,710


	Six months ended June 30, 2024

Operating activities:
Net income	$	3,276,088
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Increase (decrease) in provision for current expected credit losses	71,854



Accretion of deferred loan original issue discount and other discounts	(35,236)


Changes in operating assets and liabilities

Interest receivable	(585,227)

Prepaid expenses and other assets	(55,000)




Accounts payable and other liabilities	525,933
Net cash provided by (used in) operating activities	3,198,412

Cash flows from investing activities:
Issuance of and fundings on loans	(50,822,722)



Principal repayment of loans	13,264,734
Net cash provided by (used in) investing activities	(37,557,988)

Cash flows from financing activities:
Proceeds from capital contributions	17,000,000

Distributions	(2,600,000)




Net cash provided by (used in) financing activities	14,400,000

Net (decrease) increase in cash and cash equivalents	(19,959,576)
Cash and cash equivalents, beginning of period	31,244,622
Cash and cash equivalents, end of period	$	11,285,046

Supplemental disclosure of non-cash activity:

OID withheld from funding of loans	$	281,888





Supplemental information:
Interest paid during the period	$	—
Income taxes paid during the period	$	—


	As of June 30, 2024
	Outstanding Principal(1)		Original Issue Discount		Carrying Value(1)		Weighted Average Remaining Life (Years)(2)

Senior mortgage loans(3)	$	16,209,825	$	—	$	16,209,825	0.4
Subordinate debt	21,630,051		(246,652)		21,383,399		2.9
Total loans held at carrying value	$	37,839,876	$	(246,652)	$	37,593,224	1.8


	Principal		Original Issue Discount		Carrying Value

Total loans held at carrying value at December 31, 2023	$	—	$	—	$	—
New fundings	51,104,610		(281,888)		50,822,722
Accretion of original issue discount	—		35,236		35,236
Loan repayments	(13,264,734)		—		(13,264,734)



Total loans held at carrying value at June 30, 2024	$	37,839,876	$	(246,652)	$	37,593,224


Description	Outstanding Principal (1)		Original Issue Discount		Carrying Value (1)		Interest Rate			Maturity Date (2)	Payment Terms (3)

Mixed-use senior mortgage loan (Houston, TX)	$	16,209,825	$	—	$	16,209,825	20.0	%	(4)	11/30/2024	I/O
Residential subordinate debt (Sarasota, FL)	21,630,051		(246,652)		21,383,399		13.0	%	(5)	5/12/2027	I/O
Total loans held at carrying value	$	37,839,876	$	(246,652)	$	37,593,224


	Outstanding (1)		Unfunded (2)		Total
Balance at March 31, 2024	$	—	$	—	$	—
Increase (decrease) in provision for current expected credit losses	37,421		34,433		71,854
Write-offs	—		—		—
Recoveries	—		—		—
Balance at June 30, 2024	$	37,421	$	34,433	$	71,854


Rating			Definition
1			Very Low Risk — Investment exceeds performance expectations. Trends and risk factors since time of investment are favorable.
2			Low Risk — Investment performing consistent with expectations and a full return of principal and interest expected. Trends and risk factors are neutral to favorable.
3			Medium Risk — Performing investments requiring closer monitoring. Trends and risk factors show some deterioration.
4			High Risk/ Potential for Loss — Investment underperforming with the potential of some interest loss. Trends and risk factors are negative.
5			Impaired/ Loss Likely — Investment underperforming with expected loss of interest and full recovery of principal is unlikely.


	As of June 30, 2024
	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
Unfunded commitments	$	—	$	6,558,724	$	—	$	—	$	6,558,724
Total	$	—	$	6,558,724	$	—	$	—	$	6,558,724


Exhibit No.			Description of Exhibits
2.1†			Separation and Distribution Agreement, dated as of July 8, 2024, by and between AFC Gamma, Inc. and Sunrise Realty Trust, Inc. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K on July 8, 2024 and incorporated herein by reference).
3.1			Articles of Amendment and Restatement of Sunrise Realty Trust, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K on July 3, 2024 and incorporated herein by reference).
3.2			Amended and Restated Bylaws of Sunrise Realty Trust, Inc. (filed as Exhibit 3.2 to Amendment No. 2 to the Company’s Registration Statement on Form 10-12B on May 20, 2024 and incorporated herein by reference).
10.1			Tax Matters Agreement, dated as of July 8, 2024, by and between AFC Gamma, Inc. and Sunrise Realty Trust, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on July 8, 2024 and incorporated herein by reference).
10.2			Management Agreement (filed as Exhibit 10.2 to Amendment No. 2 to the Company’s Registration Statement on Form 10-12B on May 20, 2024 and incorporated herein by reference).
10.3			Form of Indemnification Agreement (filed as Exhibit 10.3 to Amendment No. 3 to the Company’s Registration Statement on Form 10-12B on June 10, 2024 and incorporated herein by reference).
10.4§			2024 Stock Incentive Plan (filed as Exhibit 10.4 to Amendment No. 3 to the Company’s Registration Statement on Form 10-12B on June 10, 2024 and incorporated herein by reference).
31.1*			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**			Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**			Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH			Inline XBRL Taxonomy Extension Schema Document.
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


Date: August 14, 2024
	SUNRISE REALTY TRUST, INC.

	By:	/s/ Brian Sedrish
		Brian Sedrish
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Brandon Hetzel
		Brandon Hetzel
		Chief Financial Officer and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)


Risk Rating:	2024		Total
1	$	16,209,825	$	16,209,825
2	21,383,399		21,383,399
3	—		—
4	—		—
5	—		—
Total	$	37,593,224	$	37,593,224



	As of June 30, 2024		As of December 31, 2023

Total original loan commitments	$	57,663,334	$	—
Less: drawn commitments	(51,104,610)		—
Total undrawn commitments	$	6,558,724	$	—


	Three months ended June 30, 2024		Six months ended June 30, 2024

Net income attributable to common shareholders	$	1,513,743	$	3,276,088



Divided by:


Basic and diluted weighted average shares of common stock outstanding	6,889,032		6,889,032
Basic and diluted weighted average earnings per common share	$	0.22	$	0.48


	As of June 30, 2024
	Carrying Value		Fair Value
Financial assets:
Cash and cash equivalents	$	11,285,046	$	11,285,046
Loans held for investment at carrying value	$	37,593,224	$	37,612,761


Description	Original Funding Date	Loan Maturity	Current Commitments as of 6/30/2024		% of Total SUNS	Principal Balance as of 6/30/2024		Cash Interest Rate	Fixed/ Floating	YTM(1)

Mixed-use senior mortgage loan (Houston, TX)(2)	1/4/2024	11/30/2024	$	16,209,825	36.5%	$	16,209,825	20.0%	Floating	24%
Residential subordinate debt (Sarasota, FL)	1/31/2024	5/12/2027	28,188,775		63.5%	21,630,051		13.0%	Fixed	14%













		Subtotal(3)	$	44,398,600	100.0%	$	37,839,876	16.0%		17%
										Wtd Average

SEC Form 10-Q filed by Sunrise Realty Trust Inc.