- Post Separation, AFC Gamma to Remain Solely Focused on Lending in Cannabis Industry
- Expects to Complete Separation Mid-2024
- Company to Host Conference Call at 5:00 p.m. ET Today
WEST PALM BEACH, Fla., Feb. 22, 2024 (GLOBE NEWSWIRE) -- AFC Gamma, Inc. (NASDAQ:AFCG) ("AFC Gamma") today announced that its Board of Directors has unanimously approved a plan to spin-off its commercial real estate ("CRE") portfolio into an independent, publicly traded company that intends to elect REIT status, Sunrise Realty Trust, Inc. ("SUNS"). The spin-off will result in two pure-play debt capital providers – one focused solely on the cannabis industry and a second on CRE in the southern United States. AFC Gamma believes that the separation will allow both companies to focus on their respective portfolios, articulate their own clear investment thesis, and have the flexibility to tailor their business strategies to best capture market opportunities within their specialization. The separation is expected to be completed in mid-2024.
Post separation, based on current portfolio information, it is expected that the two companies will be comprised of the following, with additional potential investments prior to separation:
AFC Gamma: | SUNS: |
• Portfolio: 12 funded cannabis loans | • Portfolio: 2 funded CRE loans |
• YTM: 21%(1) | • YTM: 16%(1) |
• Assets: ~$330 million(2) | • Assets: ~$115 million(2) |
"AFC Gamma's Board and management team continuously evaluate strategic options to best position the company to drive value for shareholders. AFC Gamma has solidified its position as a leading institutional lender to state-licensed cannabis operators, and we believe now is the right time to spin off our traditional commercial real estate operations into a standalone public company," said Daniel Neville, AFC Gamma's Chief Executive Officer. "As separate companies, we believe each business will be better positioned to pursue tailored growth strategies. Furthermore, each company will benefit from separate cost of capital and will be able to attract an investor base ideally suited for the growth opportunities of its industry."
"Separating Sunrise Realty Trust, our commercial real estate portfolio, from AFC Gamma sharpens both companies' focus on each of their strategic priorities and enhances their respective financial flexibility," said Leonard M. Tannenbaum, AFC Gamma's Executive Chairman. "This transaction also gives AFC Gamma shareholders ownership of a separate company structured with the resources and flexibility to maximize value."
Separation of Sunrise Realty Trust, Inc. (SUNS)
SUNS will focus on originating CRE debt investments and providing capital to high-quality borrowers and sponsors with transitional business plans in the Southern U.S., collateralized by CRE assets with opportunities for near-term value creation, as well as recapitalization opportunities. SUNS' target investment mix will likely include high quality residential for rent and for-sale condominiums, industrial, office, retail, hospitality, mixed-use and specialty-use real estate. SUNS intends to create a diversified investment portfolio, targeting investments in senior mortgage loans, mezzanine loans, whole loans, B-notes and debt-like preferred equity securities across CRE asset classes.
As two separate companies, AFC Gamma and SUNS each plan to have some overlapping corporate management but will have distinct investment teams and boards of directors comprised primarily of independent directors. Upon completion of the spin-off, Brian Sedrish, current Chief Executive Officer of Southern Realty Trust Inc., is expected to lead SUNS as CEO. Following close, AFC Gamma and SUNS will have different external managers.
Mr. Sedrish stated, "We believe that CRE debt markets today present a significant opportunity to capitalize on market dislocations precipitated by the rise in interest rates, declining liquidity and a retrenchment of banks from CRE lending. With an experienced management team that has a proven track record in CRE credit and structured finance, we aim to successfully execute our business strategy and generate compelling risk-adjusted returns and long-term value for our shareholders."
Details of the Separation
The separation of the CRE portfolio and the resulting spin-off will be completed in two steps. First, AFC Gamma will contribute, and SUNS will accept and assume, all the assets, liabilities and business related to AFC Gamma's commercial real estate lending business, as currently conducted by SUNS, including the operations, properties, services and activities of such business. Then, a pro-rata distribution of SUNS' common stock to AFC Gamma's shareholders will occur (the "distribution"). Upon completion of the transaction, SUNS' common stock is expected to be listed on the NASDAQ under the symbol "SUNS."
In addition, the company anticipates that AFC Gamma shareholders as of the record date for the distribution will receive a special cash dividend of $0.15 cents per common share.
SUNS plans to file a registration statement on Form 10 today, February 22, 2024 with the Securities and Exchange Commission ("SEC") with respect to the shares of SUNS common stock being distributed. Work to effect the separation and distribution is underway and further details will be disclosed during the next several months.
AFC Gamma shareholder approval is not required to approve the distribution and effect the spin-off transaction, and shareholders are not required to take any action to receive shares of SUNS common stock. The planned separation and distribution is subject to final approval by AFC Gamma's Board of Directors, the Form 10 registration statement being declared effective by the SEC and satisfaction of other conditions, as set forth in the separation and distribution agreement.