AFCG - Earnings call transcript Q2 2024

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Operator

Good morning, and welcome to Advanced Flower Capital's Second Quarter 2024 Earnings Call. [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

Good morning, and thank you all for joining AFC's earnings call for the quarter ended June 30, 2024. by President; our Chief and morning Robyn Executive Financial this our Tannenbaum, Brandon joined Daniel Chief Neville, Officer; Officer. I'm Hetzel, our

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

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

is distributable AFC's earnings During this comparable in can found call, investor which the be income, to GAAP we financial to measure most release will earnings, reconciliations net measure on a website. AFC's presentation refer and non-GAAP

for as by our an start our line results, Brandon portfolio, the for then with summary is Robin will conclude a discussing performance provide second and today's of open overview financial update Dan format will quarter Q&A. our then our on call spin-off, of we XXXX follows: an The and will will then

to President, With that, now call Robyn X I will Tannenbaum. the our turn over

Robyn Tannenbaum

morning us have good our that joined Thanks, and to investors all Gabe, analysts today. and

concentrating us us more by capitalize to the one effectively the to positions believe AFC cannabis commercial a this July following cannabis solely opportunities market lending of industry. We transitioned . that announce on spin-off lender. has excited XXXX, strategic pure-play our efforts This allows cannabis now portfolio in focus on estate being sector. move that fully our We are to X, on the real successful to the on

Additionally, our allow cannabis to real portfolio. specific us lending from pre-spin investor reporting effectively. and target quarter on bases which second results should were more are the estate include this results both commercial Today, we and

turn now we've and quarter Dan results it to I'll over milestones discuss achieved. second some our to

Daniel Neville

and Robyn, morning. good Thanks,

marked on in in portfolio the markets and then management performance and several capital start was to brief origination results by I'll quarter of the origination turn the remarks of This efforts. strong achievements . with state industry and by our portfolio key commentary and concluding. my followed management overview a before spin-off,

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

As a the the reminder, dividend. declaring consecutive Board $X.XX, July Also, of of as distributable earnings a of Board XX, quarterly declared of when dividend was fifth spin-off, Directors is with June the Board XX, special of shareholders which as paid was XX, The XXXX. the which paid X, primary on dividend metric connection XXXX, record to to $X.XX on shareholders AFC's record July of July in the considers XXXX. declared XXXX,

out paid distributable have dividend and we per earnings generated exceeded that or each in $X.XX public, our going met quarter dividends Since share.

origination management; to that said plans reduce engine November, last were to to: my the to our X portfolio forward, joined priorities I declare three, to to enhance one, Board credits two, of When reinvigorate on AFC and continue underperforming Directors cadence. underwriting. normal I active dividends through Going key its quarterly exposure the

a in ]. to [ subsidiary Company progress announce made I'm highlighted that extremely Public successful on loan significant June, loan pleased then, exited of by with Since $XX we've our largest a million successfully facility, A we notable several credit priority, quarter an exits. each to

accrued, a portfolio generated of active team internal management including to a outcome month we the return its interest and one rate later May. April by the at default result make party This AFC plus very Less loan. During to of payment the failed XX.X% highlighted in third the our loan the par than of was last call, that earnings months over of we interest. the life borrower sold

and generating its This complex to excited exit sweeps. to strong also underscores returns to that cash commitment loan a for our hands-on our million via made final a taking company flow private May, report prepayment in shareholders I'm credits. excess approach managing on team $XX

IRR XX.X% of $X.X loan. life last the the quarter. generated This an prepaid million this exit With over past impressive the

prior company was September in in in noted million receivership maturing the quarters, Additionally, B private XXXX. loan we following that $XX

June, with the in acquisition loan announce par collateral. the a exit finance that we $XX provided at plus loan pleased to to accrued, secured are purchasers including We of the same sale, the we sold by a our Concurrent to portion fees. million

Our yield facilities. a of certain to have exits, on X we weighted see maturity average the current maturity to an yield you credit portfolio And at IRR as has above or average these from weighted XX%. can generated recently

this yields into redeploy credits to while at look will also attractive capital portfolio. our diversifying further We solid

were have June CECL And CECL with them. value. and additional $X As We appropriately losses Since interest selling are progress. while entered unrealized has we March forbearance to positions $X.XX The today. equity losses and to to AFC. to in these XXXX, G we make million we added Subsidiary share reserves into reserved of the share reserves. company generated back date, per agreement for positive XX, outcomes shareholders. private positions to of million in of per par, reserves believe actively value over we of be we By at unrealized exited the losses infused steady and our laser-focused $X.XX $X.X capital unlock paid book managing additional per continues of has portfolio of we $X.XX to associated the unrealized this in share had XXXX, continue on quarter borrower had will the

significant in on our interest Additionally, enhance accrued is if loan paid this could there which cash returns.

expect Jersey place the in have has operations. planted lab the New than Jersey COX continue just without from to be the we facility kitchen cultivation In sometime at months, and performance gone over improved X to with New operators the operational and fully put quarter. less planted Pennsylvania experienced in With we COX and XX% fourth see we the borrowers, to online fully

a As the produced with remarkable in expect one biomass a wholesale a in the uptick tripling stores tightest result, in from in operating the of significant the Similarly, Pennsylvania, ] [ has sales we country. driven markets turnaround bottom. in the partner

year. the And progress are We all wholesale be happy Jersey by the with firing cylinders far. expect New of to so the end on very

[ are exceeding ] we this our meeting million to XXXX. documentation, X with X have deals confident or target. target. in towards On bring totaling are additional the substantial target $XXX closed our million for close progress which Year-to-date, front, making we origination in of million are And $XX.X deals would $XXX

Our current is and cannabis pipeline steadily at $XXX growing million. stands

to credit [indiscernible] we facility company to provide leading quarter, of pleased space. a private the able were senior brands the one the in secured During

We growth. are excited into solutions to unique and to of they at support borrowers provide our stages the East This all to meet further our as flexible demonstrates their transaction requirements ability expand the Midwest. and their of growth Coast tailored financing

a adult-use toward the Pennsylvania now a The low concluding Ohio I'd legalization than a very of was sales $X.X on remarks. at $XXX population before more the in medical to commentary similar launch medical medical in industry triple provide patient continued has Ohio. market program a march penetration. million with like yesterday billion. with some size with my

in AU As we borrowers. sales low players, to The start-up and a capital Alabama a for penetration, the over and demand existing of de our see this ] flip around importantly, of result the start including potential Pennsylvania years and drive Florida of Ohio, X flip programs medical few in expect for the strong to the a industry novo of coming our years. for next the more [ and Kentucky, optimism increasing growth in the

X public the at capital loans over Turning existing of recently XX%. all-in companies term large an markets. each large little refinanced Two a to yield Tier

is increase One past due a where in of performance basis part was also yield, years. these but point spread XXXX, industry refinanced over the the in increase due rates XXX in yields debt. X.X% XXXX. the in At borrowers X increase in in vintage generally to resulting raised is to versus This that XXXX since a

as in M&A the issuing we companies All IRRs opposed wider the use are with XX%, expect supply else reaching to teens to focus demand going we yields. high larger on happy said, remain curve capital public refinancings, capital that the for activity, generate being should then are have With companies to demand up and to in uptick that targeting these moving debt at private are mid- imbalance quality yield. expansions Between equal, for persist. medical the adult robust recent still to and and if returns on we while

confident industry. performance generate to business, estate real to commercial our to in our fully of continue ability on and cannabis for are spin-off remain lending financial the strong focused the With shareholders. we our now We value deliver

We the demand well capitalize and positioned us capital in will are the to supply industry risk-adjusted imbalance returns. opportunities the deliver growing to believe attractive on allow

turn more to Brandon financial over it I'll detail. that, to our With in discuss results

Brandon Hetzel

Thank Dan. you,

pre-spin. reminder, a discussed are As figures all QX

distributable For the $XX.X common $X.XX interest of quarter a basic million share. net and share $X.XX million earnings net per per weighted income generated or weighted $XX.X ended June income or basic had million of common XX, of GAAP average $XX.X XXXX, and we average

business. shareholders and Distributable stock and is outstanding assessing we represents items of unrealized period. XX net recorded noncash the earnings taxable also second mentioned, principal dividends in as income earnings losses, with ended as or with losses for spread income previously million re-subsidiary $XXX.X XXXX AFC's for compensation any provision net the loss, credit CECL, overall accordance As loss noncash believe expense, GAAP, providing known quarter in of such other across items to computed . We gains of loans. excluding performance income expected current of net or the or distributable helpful

CRE portfolio August $XXX.X over was following completion outstanding As XXXX, of spin-off the XX% across portfolio. XX yield consisted to our X, X, loan which and loan measured XXXX, million June portfolio the our of principal life the weighted XXXX. for loans of XX, maturity, as each of of average of approximately August is The of such

As had X.X% earning majority of million, with interest total including of currently of $XXX cash approximately June cash $XXX.X of million XXXX, our the X.X%. XX, assets we to and equivalents of cash

in repaid drawn subsequently which full had line credit, on on $XX million was XXXX. We X, July of our

AFC credit in the needed. provides of bonds remain credit at line the million drawn be us and available unsecured up spin-off. lines to can with funds Our that the as following Both $XX

reserve XX, June $X.X March XXXX, loans XX, million million. the was million carrying value, of from $XX.X As the our XXXX or of at $XX.X approximately X.X% reserve of which CECL decreased

balance our During increase the million. value in on current million loans at sheet quarter, in unrealized $XX losses the second unrealized to increasing our we $X.X had an loss total fair also of included

of As per of of portfolio, shareholder book or June share which ended, quarter XXXX, the included the CRE our distribution we and XX, of value After the approximately million, was value equity and $XXX.X share. $XX.XX. total cash approximately $X.XX book spin-off per our loans of was million $XXX completed our

paid common quarter of dividend as On of $X.XX XX, of AFC shareholders July a XX, per record the to for second XXXX. XXXX, share June

XXXX, Additionally, $X.XX dividend record of share a per July of to shareholders of paid as special we XX, XXXX. common on X, July

treatment As our on AFC website the With is we earnings and form on effect shares, year. basis cost the annual this the an pay a will our XX% reminder, between post distributable on to of future. policy regards discussing a of over near XXX% to the dividend spin-off in the of basis,

year determination will reflected set final be the dips on year-end. XXXX of the until and finalized However, the end your be cannot after

operator I the to turn With back start will it to Q&A. over that, the now

Operator

the of from & Zuanic Zuanic with [Operator Instructions] comes Our line Associates. question Pablo first

Pablo Zuanic

just of earnings terms Maybe color know in if can on? you and what since have the an call, more that. That first but for question Dan, what start are give it's accomplished if you with you -- helpful just to can the us company you be -- background focused I joined, you in would

Daniel Neville

question. Pablo. absolutely, the Thanks for Yes,

priorities manage when had I that to X in the underperforming first credit. So came I were

new the from yields. progress a that as the seen this operators lot and I able with in activity in as prior recycle that of well think, you've to profiles being made space attractive quarters, at capital Getting attractive we quarter into activity as capital credit back front. on

progress. has work lot made prior last that of X but months, of significant and been So that a to work a joining, lot was myself we've ongoing over very the

more is very front. still job The to There's bit think not on that made. we've overall, work do. pleased little the finished But progress I with that we're a

some $XX XX on the are sitting capital about were market that hadn't and given that and coming We're today. in seeing. cannabis commercial be been the origination We're the focused on well the XX in very of have I that the the of to focused the vintages out in more quality portfolio pipeline existing the to prior from in AFC efforts. now real some as and active as Secondly, dialogues was back think, were me back that space capital estate joining origination. months for market and of some on operators great of deploying happy we've vintage in performance a had been we of active management as million with, got -- and the offensive back of our

underwriting side is And of things. then finally, just on active very being the

of the of and evaluation that at the helpful given and on wealth side experience the little context existing facilities, credit side the sites, underwrite the on each ascend bit and lens think top-down of the background on things a at de things time allows growth structuring my and lending team, looking a side provides as retail operation Robyn at novo during a operations of and [ to things more adding on the do over I as direct a bottoms-up else very in underwrite, has AFC ] and of basis. just to well my everyone come me Lana

help at that or something years that amount and deck very from in of the my looking portfolio. that's experience have we're And wealth is I credits as I the a is working have business. X new to useful decent build of end and that, on proving experience scars that my a

Pablo Zuanic

that we've private supply more which is color. or balance, like X companies good last banks, great there's That's case the or changes question. But seems supply are yourself. it's to Look, side, in in hear Obviously, these the there recently, just options whether right? on demand maybe It seen for you capital of seeing when seems or the companies one a regional not any I right, the there, refinancing, necessarily? -- backdrop for that out terms more you're debt whether more be X that's industry

Daniel Neville

Yes.

player space previously the in X/X that X time. things, existing recent primarily been same active the the around financing think was side I refinancing one I of participants see the were on player. an to of from refinancings it's Tier players. of believe we in Other somewhere someone a that's time The the and

we're same a lot the there quite So folks out seeing be honest. of to

things, at think really much I on not running players we're the regional those bank side all. of to

One of is public. those competitors

think $XX I the year-to-date into space done they've year. million this

And some are pulling other players back. the of there

standard not flexibility of provider. very borrowers relative regional the solutions things we're much underwriter we just that bit to approach what cutter dynamic bespoke LTVs. credit value lot that the running think, a protections think to more our we're credit obviously, need it's We're each I I investment. capital that a So a can and with we flexible into, the lower we is value, on And is can cookie provide. and credit facility a each of that unique, I our banking people side seeing think protect of at But something provide

Pablo Zuanic

it range-wise? color looks I want to you the any like, forma I you're more could one add know, position can in give forma in if a book, new know of I any Look, terms color -- pro of to pro numbers? dividend terms what -- if in don't can provide you what be a don't

Robyn Tannenbaum

Sure.

Board said I in think a as remarks, their the So on the will normal declare dividend his dividend standpoint, Dan cadence. from

just and X/X if declared quarters, I think dividend the kept you a we the spin-off, about $X.XX for off of X the about spun -- last X/X about we've we And believe. assets think If you asset. of

numbers, pro think spun terms Brandon QX what off. book, you forma In I gave of the we on right,

So, book share. we per spun off $X.XX value of approximately

Operator

you conference for [Operator Instructions] you showing at call. disconnect. questions and And currently now Thank I'm conclude time. today's does This further no your may participation, this

AFC Gamma (AFCG) 7 Aug 242024 Q2 Earnings call transcript