AFCG - Earnings call 4 2023

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Operator

Good morning, and welcome to AFC Gamma's Earnings Conference Call for the Fourth Quarter and Fiscal Year ended December 31, 2023. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Gabriel Katz. Chief Legal Officer. Please go ahead.

Gabe Katz

you Fourth joining ended Quarter XXXX. thank Call Gamma's December and the for and morning, all AFC for Earnings XX, Good Fiscal Year joined President; and Executive Hetzel, our Tannenbaum, Chief I'm Officer. Officer; Brandon by Financial Neville, Executive our Daniel our our Tannenbaum, Robyn Chief morning this Chairman; Leonard .

the would of to release that is January and Gamma's XXXX, press this in we afcgamma.com, our included is being Before along our portion like presentation. investor fiscal fourth begin, call is Investor posted website at quarter on and I release AFC year information note Relations recorded. Replay with earnings XXXX XX, and

anticipated Please Today's could predicting in current recent factors conference certain respect in that uncertainties things, periodic inherent forward-looking from These to, and results and projections statements includes developments, financial statements and with other these beyond. future subject views yield conditions the and performance filings that most portfolio reflect projections. XXXX statements and projections to with to for cause forward-looking differ the are to SEC results. among AFC materially company's market call Gamma's significant actual and future refer

presentation we Reconciliations Q&A. our performance Dan on well GAAP financial summarize as will earnings and is earnings, to fourth an follows. refer will is non-GAAP commentary. and of call financial lines open available AFC found in Len strategic the we and most Brandon format a be as quarter as introductory today's can Gamma's The year release for measure. then call, distributable provide our for results, overview investor some measure earnings full this of During will and remarks, the will income, distributable website. net which comparable to Gamma's AFC

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

Leonard Tannenbaum

our December results. us Year to morning, and discuss and the today for thank everyone joining AFC I Ended welcome Earnings to like for XXXX. to XX, Fiscal Call Quarter Good would

the $X.XX AFC XXXX, average distributable generated of common ended For stock. quarter weighted earnings basic of per December XX, share

quarters. distributable when Directors primary reminder, a which share quarterly is the considers a the with of per $X.XX Board for line dividend. public, that in earnings dividend X have generated Since out the or the quarter, metric December Board dividends, declared was each out paid have our earnings $X we per AFC's dividend per fiscal and As previous declaring during going share The quarter distributable share including exceeded met $X.XX paying XXXX. in

of approximately AFC year full out the distributable dividends. XXXX, of For the its in XX% form paid earnings

of XX, mid-November, in fourth Dan's evaluate to to first the of which and with Directors Board the a been lens as continue record of busy bottoms-up has investment on team dividend, as has XXXX. consecutive paid we quarter very declared the portfolio as Dan's appointment Since XX For $X.XX be operating March our will shareholders April CEO approach.

with assets. team the pleased our on progress has made am the I of some underperforming

As cannabis complete. discussed we on of real return its X the focus weeks the lending to our to estate portfolio commercial spin-off AFC will industry ago, exclusive after have is

off spin ticker separation. will an completion upon SUNS is REIT, trade symbol Realty NASDAQ which portfolio Sunrise into the Trust, the estate real the to under commercial publicly the on reminder, Exchange of independent, a As traded expected

specialization. thesis their to separation market on company the allow The clear in potential opportunities portfolio, focus business their to real to best commercial flexibility capital we We this to respective within SUNS have investment respectively. and grow as providers believe positioned be have will own strategies pure-play because its the pursue better each realize will decided independent, and and cannabis both and capture transaction space, tailor to articulate that full AFC their their estate

final be spinoff We approval as as SEC to of well mid-XXXX, Directors. subject to review Board by completed the by expect our

of shareholder represent spin-off, capitalize excited largest regional the CRE significant market I a the am a today on SUNS. for opportunity and both Chairman liquidity declining and interest lending. precipitated from debt of about AFC banks pullback dislocations, markets CRE executive very entities and in the rise rates, to future post As by

seeing deal also will weeks. are a We increase it large cannabis I AFC Dan our flow the in discuss pass CRE that, With in few past to to portfolio.

Daniel Neville

joined earnings morning. CEO as and been future and X speaking CEO opportunities. a for to since busy AFC has our Thanks, be Good you Glenn. delved excited and into AFC. months call It I'm to of my I productive portfolio as first

to and portfolio Before turning management. of minute wanted the to state I at help states to experience integrated X operations, of at Previously, analysts introduce roles, valuable cannabis first Wellness employees leadership portfolio, vertically operator and revenue. I over held our pipeline take CEO. stint to was cannabis CFO one over and the I in multistate years was including in grow bring a operation at I areas Holdings, and investors. Ascend of a M&A company's a the to industry, myself to of I $XXX the the where various Interim million across Ascend and the and opportunity XX X,XXX have employees

Credit I a Capital, Director that, Suisse. Managing Prior at before was And a I was investment SLS fund. an hedge banker that, special to situations at

AFC. to Turning

a of the a institutional are limited of to growing with industry, We of $XX institutional one is billion market cannabis capital providers capital. supply debt which the leading

X.X expand, industries now or in reentering are pipeline our seeing businesses These founded mainly and that cannabis driven entrepreneurs are were the by cannabis or have industry. what entering we We players. are successful other call cannabis

assets. and opportunistically Many of distressed through a building these companies organic are of combination growth acquiring

many of We leasebacks or are and sale finance stacks debt with these legacy tax are clean capital unburdened excited liabilities. have operators that to

continues, Ohio, cannabis could for few toward Pennsylvania, years. will increase. in Florida additional Virginia, adult-use capital next XX legalization between As and an the the gain demand only march to Americans access million

X.X additional states capital This and and significant a continually are capital. points has require to toward see to continued likely is opportunities march Carolina production experienced Kentucky all along infrastructure AFC's medical retail will operators the growth Carolina, a the with lack North Cannabis in that South that of demand distribution. these capacity, access U.S. increase like Additionally, market also to of implement the incremental legalization and platform as to distribution expand We programs. in

my Since and miles have in done volatile industry. joining on dives in continue of with AFC's toured to well from in regular AFC XX,XXX points deep I've and yet have is markets, visited and all over with flown met a portfolio. that rapidly contact is The I growing takeaway November, cultivations positioned and the dispensaries. XX XX main portfolio borrowers travels AFC's X cannabis

and with through our have such existing and dynamics. solid, Also, limited adult-use borrowers, New states states Jersey, good transition attractive supply-demand exposure to Our portfolio we is Missouri, concentrated on early-stage operators in near-term Pennsylvania. Ohio as license expected

believe firmly thesis to our has I well to will returns. and us that continue risk-adjusted set generate investment up strong

our portfolio. to Turning

actively make reducing stakeholders. Two to and underperforming benefit to value of for our and are managing progress on remain We exposure borrowers in receivership all the assets our to continue portfolio. optimize operations maximize

borrowers, partners, received of million One assets during has liquidating paid of the private syndicate in down $X principal over actively which AFC has company been and million paydown $XX to A of was our and principle quarter. far so

last subsidiary which company several the flow of have have cash we to G, closely continues quarters, private we challenges. discussed As are during working with

million that working remainder mentioned XXXX due of quarter, interest capital. borrower November. had we the adequate in $X received Last for to we of ensure payments month cash the AFC that the modified October the was and interest

reduced a of each and the exchange of rate. decrease equity debt only New the make will contribution financial Jersey for the term. requires partial However, the in a Pennsylvania joint to significant payment to negotiated and borrower for made a the parties have a operators operations on borrower install borrower The December. interest in optimize This that plan top service in burden near

introduced and down interest that single-state anticipate sweep of borrower significant loan a for Pennsylvania managed operators the a supply begin enter Officer the with The and their also will Jersey in will operate the be amortize the unpaid remainder both in agreement through one operations both industry. services Chief to maturity. We of turnaround to cannabis by significant Restructuring New pay current operating fully cash top the dispensaries. will also experience into management The we now and loan with and

draws the With operators agreement anticipate Missouri. loans, to skilled XXXX, the reduction experience, build-out private to company L future company operations million these their assets, into fund This in $XX a assets sell in better these early their sale translate $XX hands both we cultivation performance in with private of entered significant cannabis Ohio. will in from in in attractive an offset million coming January by of quarters. on In into L principal

in leading principal company received the the portion XXXX, a X, million. January to $XX.X reduction of of On funds first

of the end million We receive the $X.X half expect remaining by XXXX. the to of first

the to Turning originations front.

Florida use cannabis as due been states in adult and quite in active to up have where picked transaction such We Pennsylvania for the activity term. potential Ohio, near the transitions

Additionally, we implemented. and in are pursuing where phase were a a as currently in are borrower such that recently Alabama, sheet opportunities We and strong date. expect or states cannabis programs we transaction investors medical which documentation signed updating lend on term Georgia and have our once to excited are the analysts closed, month look limited to so. will in next in we the license be a We to forward for

of the of how be am XXXX, create is As cannabis I of million. know before, for active confident pipeline the deals able to to we're with our value and comprised it in the X, all and who people It's execute, pipeline. largely of have quality deals of the operators $XXX stakeholders. March currently pleased particularly done their we'll

given move institutional high-teens while we mid- make achieving additional continue the will to still quality curve investments believe this the to and to of us allow liquidity We IRRs. limited have to supply up capital,

AFC for that industry. to this is growing We capital be firmly positioned of go-to believe provider uniquely the

my active diversify deals management first, companies continue deals Looking and issues key to portfolio strong priorities with to new through to select underwrite substantially new an originate $XXX the operator's of our an and second, ahead portfolio; eye million are: finally, risk-adjusted approach; at with in address to third, XXXX, over and returns. portfolio

it discuss Now to over to financials. I'll turn Brandon our

Brandon Hetzel

Dan. you, Thank

and to in quarterly report the fourth quarter We with year fiscal XXXX. pleased results. the strong are Beginning results

distributable ended $XX weighted basic we quarter of distributable common $X.X weighted driven net XXXX, generated per earnings weighted our loss fair quarter. million December ended share. year basic $X.XX XX, our On average or XX, increase per $XX $XX.X income basic in of $XX held $X.X and in between December on had $X.XX of common by million million of or net common average $X.X and of and the share the $XX million average of $X.XX reserve $XX.X at is for million of an million GAAP of GAAP interest we for $X.XX per net an XXXX, a For our value . The million $XX and net income interest common and earnings share. earnings the of income loss per had CECL unrealized of basis, our loans difference average million losses weighted million earnings or net increase fourth an share annual million distributable of mainly and or GAAP generated basic

period. mentioned, the we earnings overall previously represent unrealized or computed items to the AFC's performance of known of as taxable with is any the accordance recorded subsidiary assessing credit for also distributable providing in income compensation provision believe current noncash gains excluding As expense, in income dividends such other as and in REIT net losses earnings shareholders noncash helpful items stock or net Distributable loss expected GAAP, losses, net or income for loss, business. CECL,

quarter funded real XXXX million, and an $XX.X was committed see across of million. across million XX active of with December $XXX we Subsequent outstanding principal attractive $XX.X of deals XXXX, CRE continue commercial spread have estate XX, fourth $XXX.X the million of pipeline to mezzanine and ended loans, which X AFC We borrowers. to

$XXX.X XXXX, loan of outstanding and of as X, XX, of life loans. million was X, portfolio principal is our XXXX. of XXXX, of XX% loan each measured for XX average across March The As approximately such maturity, portfolio March weighted which yield to December the consisted over

balance our sheet, let's remains strong. take Next, which at look a

XX, repaid December cash million, million assets was on including we subsequently As cash X, our had $XX equivalents of and $XXX.X XXXX. drawn line on $XXX.X XXXX, January credit, and million had full in of of total of which

our can funds Our earning as line X.X% be to in provides million us of approximately to up of drawn $XX majority interest the Currently, that credit available is of needed. cash with X.X%.

X.X%. the CECL XXXX, XXXX loans value, the approximately of December or or XX, of million As or million of increased was our which carrying $XX.X reserve at X% million reserve $XX September X.X% $XX.X from XX,

quarter, X fourth represents we reserve, addition which In an increased during fair had value have the $X.X increase our loans We portfolio. unrealized XX% of currently borrowers on CECL our of on million. to losses nonaccrual, the in at

December January value was December a of equity quarter AFC was to of book XX, share shareholder XX, of fourth our total As per shareholders of share XXXX, paid common million $X.XX XXXX, per $XXX.X our and XXXX. dividend for XX, $XX.XX. On record as the

year approximately distributable the paid For fiscal out earnings. we of XXXX, XX% our of dividends

reminder, a our dividend As policy distributable to the between on year. and pay annual is an of basis, XXX% earnings XX% over

to April For quarter Board to XXXX. of of operator $X.XX XXXX, over will will which the the to With the start of paid now a that, XXXX, turn shareholders the I XX, Q&A. record first Directors on declared of March dividend, back as be it XX,

Operator

and line of the [Operator Instructions] Our from first question [indiscernible] comes Associates.

Unknown Analyst

the all making. progress on is the company Congratulations

made banks or prepared you the give Can more that. of on context the think out industry. I in the comment, the pulling about regarding color regional remarks you Just

one active in there refinancing are the ] Citizens about Needham getting of the lending. or know trend. On Bank, terms don't entering space, we in of First Report exceptions I bank, there. [ Bank talked hand, the more XXth space a if more largest some

side. in If color from seeing of just banking competition you're can more terms the give the you

Daniel Neville

Yes.

So Pablo, thanks Dan. for the question. is This

a You kind are ahead to were grow They understanding and deployed little the back into now taking Needham more did bit. some of that that space. capital come bit book is they're space, they've digesting into step seeing loan looking of their the transaction activity. a IPO of their Our the a

For companies. real Needham do has have public companies larger part, we to the Those that the lending not require for most coverage been status. often estate . REIT

this And very others and some $XXX Needham say see $XX commercial really space. have and good thing I'd running market. still that's is the in billion the between or not billion the played that second a into illicit sitting industry opportunities, is the that banks I we're So a legal industry of within like

as million a was more attractive verticals, next required. is or That so people. night, medical Carolina capital and going program X. be just going is and XX more sometime great in year example. that XX And have state implements very flip, It's a market, to a states to is there's more lot thinking it last probably North I the a

X with XX stores Those verticals apiece. come

verticals. I demand $XX million for a vertical of million seems opportunity. $X capital $XX multiplied that by there think be available demand a state like at -- capital. the we is look $XXX and And flipping X So a When incremental the capital million and that capital between grow for to of capital good per store. [ institutional XX of and the That's ] mismatch continues pretty supply million

Unknown Analyst

as maybe And follow-up. a

now, was made, real course, right, doubling of down you're for cannabis just Len the it but maybe the change. In on then ago, terms were of maybe year about is What or obviously And that the, to guess, that I idea that you more pivot made you've Robyn, context seeing, commercial diversifying [indiscernible] estate. that A right? exiting, you you're

remind right? us apparently medical of trends more and competition, industry course, some creating the the deflation, view other see going cannabis guess are positive On industry of -- change hand, why on the we the But I level, tougher seeing on that hand again. hand, refocus we more one in so more and of the just going made on direct, states, But no licensing federal at or course, about progress other conditions. But states you more the why more more

Leonard Tannenbaum

had that that's rec, and was a very I'm rec, earnings. excited positives Pennsylvania Ohio I think very lot helped a the really we with Missouri happened probably of borrowers Georgia. going actually experience out the our going in of good really and that quality about the

is George state, great think be I a too. to going

changed he's I as and the governor think It's course, way. a after rec demand, lot other here. And that where where But sort of states dynamic to positive left in creates view the race there's number Florida started horizon. a in outlined. has by away, of Dan the presidential support the sitting of years we're of his

you quarters. X.X cannabis for for X we is X.X wait And see And Cannabis and going the this I've plus We're so to that. literally players. consecutive -- sitting the X.X done. see we're said

legacy have a think players lot a of the I of lot problems.

that a job are We did. the to very taking job. really done X operating happy here did what And lens to businesses, they with we We or that Dan run. these ago. look has a year approach. get happy approach. have should at liquidations how now. a exits an and phenomenal think -- should different they're be have a a that and done I their Maybe operating we good that's But Dan worth from

I'm the $X taking excited be SUNS direct our are their lending about equally thing. Sun spun opportunity phenomenal I'm that billion to back. regionals their estate. excited direct direct-lending real So opportunities also going a a and opportunity is build I'm And Sun the is set about same real in own I'm and direct I excited for AFC cannabis, and and about lending private is shareholders The industry, I'm estate, be that, lending -- LTCs about equity background. The real Look, set about we're direct lender excited lower are They pulled there excited and and of about cannabis. to pretty by going out. will too. stock in estate, X/X

led to really X great . great I think opportunities you've got So leaders. going X by are that be

Operator

today's conference session. you call. participating. concludes today's concludes for That Thank This question-and-answer

now may You disconnect.

AFC Gamma (AFCG) 7 Mar 242023 Q4 Earnings call transcript