Q2 2023 AFC Gamma Inc Earnings Call

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Hello, Good day, everyone and thank you for standing by welcome to the AFC Gamma second quarter 2023 earnings call.

This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question you will need to press the star key and the numbers one one on your telephone Yugo, Dan here and message of Dicing. Your hand is raised to withdraw the question simply press Star one.

And again, please be advised that today's conference is being recorded I would now.

I would like to hand, the conference over to your Speaker today, Gabriel Katz, Chief legal officer.

Good morning, and thank you all for joining <unk> earnings call for the quarter ended June 32023, I'm joined this morning by Leonard Tannenbaum, Chief Executive Officer, Brandon Hetzel, Our Chief Financial Officer, and Robin Tannenbaum, Our president before we begin I would like to note that this call is being recorded replay information is included in.

At our July 24, 2023 press release and is posted on the Investor Relations section of FC Gamma as website at AFC Gamma Dot com, along with our second quarter earnings release and Investor presentation.

Today's conference call includes forward looking statements and projections that reflect the company's current views with respect to among other things future market developments anticipated portfolio yield and financial performance and projections in 2023 and beyond these statements are subject to inherent uncertainties in predicting future results and conditions. Please refer.

To AFC damage most recent periodic filings with the SEC for certain significant factors that could cause actual results to differ materially from these forward looking statements and projections.

During this call we will refer to distributable earnings which is a non-GAAP financial measure reconciliations of net income the most comparable GAAP measure to distributable earnings can be found in both the FC Gamma <unk> earnings release, and Investor presentation available on <unk> website.

The format for todays call is as follows Len will provide introductory remarks, an overview of our second quarter performance and strategic commentary Brandon will summarize our financial results and we will then open the line for Q&A.

With that I will now turn the call over to our Chief Executive Officer letter Tannenbaum. Thank you Dan Good morning, and welcome to <unk> earnings call for the quarter ended June 32020, great I'd like to thank everyone for joining us today to discuss our results.

Turning to the quarterly results for the second quarter of 2023 FC Gamma generated distributable earnings of 49 cents per basic weighted average share of common stock.

As a reminder, distributable earnings as the primary metric that the board considers when declaring FC Gamma <unk> quarterly dividend.

The board of directors declared a <unk> 48 stock dividend per share for the June quarter.

Since going public we have just generated distributable earnings met or exceeded our dividend each quarter and paid out $4 58 in dividends per share.

Since mid 2020 care given the market interest rate volatility <unk> has taken a conservative view to deploying capital.

We've raised the bar on originations and maintain ample cash on their balance sheet to capitalize on opportunities that may arise.

As we stated last quarter, we continue to see an uptick in acquisition activity in the cannabis market both from existing operators buying distressed assets as well as new investors coming into the market to purchase assets by significant discount.

The capital formation around these assets is promising we continue to believe that there are investable space in catalysts, including Missouri.

Georgia, Maryland, Arizona, and Ohio to name a few.

Subsequent to quarter end, we funded a new cannabis investments a private company of approximately $25 million and to one of the newly formed well capitalized operators that we believe will contribute to GAAP to consolidate valuable assets and key limited license states.

We continue to have liquidity to make additional investments in operators in limited license states that we believe have strong risk adjusted profiles.

Turning to our current portfolio.

We've made substantial progress in reducing our exposure to underperforming assets and continued to accurately portfolio Madison.

We believe that our focus on targeting operators in limited license states.

Set us up to mitigate certain risks.

During the June quarter.

Subsequent to quarter end, we have been active in monetizing collateral to reduce exposure to these underperforming credits.

Relieve select with received select.

Prepayments and or sold at par $43 $4 million of debt and these credits, which I will now describe in further detail.

In May of 2023 replaced private company.

Which was a category four bone under our seasonal analysis in foreclosure.

We sold two thirds of the credit facility to a multistate operator at par plus accrued interest.

Right and the remaining one third immediately prior to the transfer of one of the borrowers cannabis licenses.

A multistate operator, it's now leading the foreclosure process and we expect that we will have a full recovery on the remaining one third of our debt outstanding.

This asset remains greater risk category for loan under our seasonal analysis.

Additionally, during the quarter and subsequent to quarter end FC Gamma and Syndicate group.

The pay down of approximately $45 9 million a private company as credit facility.

Borrowers Dale, Thanks, Marilyn and Arizona assets.

As another example of apps again as active portfolio management approach to Derisk underperforming assets.

Lastly, we were a small co lender as part of a larger credit facility to a subsidiary of private company each.

During the quarter, we successfully exited the loan matured and we did not participate in the refinancing.

We received a repayment of all principal.

Accrued interest.

Disease.

As we've discussed during the last several quarters private company G, which we were closely monitoring continues to have cash flow challenges.

While private company G, which pays interest, which pays interest in arrears pivots full monthly interest remaining cash they did not pay any interest for the month of June and are now 30 days past due.

Additionally, during July we made the decision to lay off their management team, including the CEO and CFO .

While we continue to engage the private company Ge's restructuring team, we have put them on non accrual for the month of June .

We remain excited however, about there about their near term prospects in New Jersey, and look forward to the full optimization of our cultivation facility in September .

We may need to attract additional capital to the specific project to complete the full build out in New Jersey.

In order to reduce our exposure to this underperforming asset we've initiated a successful closing proceeding with respect to the borrowers three Pennsylvania dispensaries.

We expect that the net cash proceeds of the public auction will be used to prepay a portion of a principal outstanding under our credit facility.

All interested parties should contact PPL group to participate in the UCC particle nine foreclosure auction, which is scheduled for September .

Additionally, private company <unk> has told us that they intend to sell certain non core non collateral asset to contribute towards interest payments and its expansion of its new Jersey operations.

As we have said in past calls we believe there are incredible new Newark cannabis operators entering the market that are well capitalized to take advantage of the current market environment.

We are pleased to begin investing in this next phase of the cannabis industry.

As you May have seen in today's Wall Street Journal and the article titled.

New lending by mortgage REIT has dried up.

Informative article.

Opportunity non cannabis real estate continues to grow at its.

Centers around the regional banks and mortgage Reits limiting the amount of capital they are lending and our loan to cost basis.

As a result, this creates an opportunity for alternative lenders like us to fill that void.

We continue to see interesting deals in commercial real estate have formed a strong pipeline of these opportunities and are working through several deals in the term sheet stage.

With that I'll turn over the call to Brandon to review our financial results.

Thank you Lynn.

For the quarter ended June 32023, we had GAAP net income of $12 1 million.

Our earnings of 59 cents per basic weighted average common share and generate net interest income of $16 1 million and distributable earnings of $9 9 million or <unk> 49 per basic weighted average common share as previously mentioned, we believe providing distributable earnings is helpful to shareholders in assessing the overall performance of <unk> business distributable earnings represents.

Income computed in accordance with GAAP, excluding noncash items, such as stock compensation expense and unrealized gains or losses provisions for current expected credit losses also known as diesel taxable REIT subsidiary income or loss net of dividends and other noncash items recorded in net income or loss for the period.

We ended the second quarter of 2023 with $397 1 million of principal outstanding spread across 11 borrowers subsequent to June 30 of 2023, we funded $25 million to private company.

As of August four 2023, <unk> portfolio consisted of $437 5 million of current commitment with $425 7 million funded across 12 borrowers.

As of June 30 of 2023, Vascepa reserve represented approximately four 7% of our loans at carrying value compared to five 4% at March 31, 2020 through the decrease in the reserve was mainly driven by the sale of two thirds of the loan to private company during the quarter.

The weighted average portfolio yield to maturity, which is measured for each loan over the life of special alone was approximately 21% as of June 32023, and 20% as of August four 2023 next let's take a look at our balance sheet, which remains strong as of June 32023, we had total assets of $454 million in cash and cash equivalents of 82.

$2 1 million. Additionally, we had zero drawn on our line of credit, which provides us up to $60 million in available funds to be drawn as needed.

Currently the majority of our cash is earning approximately four 3% to five 4% as of June 30 of 2023, our total shareholders equity was $343 million and our book value per share was $16 64.

On July 14, 2023, <unk> located dividend of <unk> 48 per common share for the second quarter to shareholders of record as of June 32023 year to date, we have paid out dividends of approximately 99% of our distributable earnings as a reminder, on an annual basis, our dividend dividend policy is to pay between 85% and 100% of distributable earnings over the year.

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

Thank you.

Thank you we will open the lines now for the audience. If you do have a question that is star one one to get into Q1 moment, while we compile the Q&A roster.

Again that is star one one.

I would like.

To turn the call back to Lynn Tennenbaum for final remarks.

Thank you so much thanks, everyone for attending the call look forward to reporting to you next quarter.

And with that we thank you for participating in today's program you may now disconnect.

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