Q4 2023 AFC Gamma Inc Earnings Call

Okay.

Operator: Good morning, and welcome to AFC Gamma's earnings conference call for the fourth quarter and fiscal year ended December 31st, 2023. At this time, all participants are in a listen-only mode.

Good morning.

And welcome to FC Gamma <unk> earnings conference call for the fourth quarter and fiscal year ended December 31 2023.

At this time all participants are in a listen only mode.

Operator: Later, we will conduct a question and answer session, and instructions will be given at that time. As a reminder, this call is being recorded. I would now like to turn the call over to Gabriel Katz, Chief Legal Officer. Please do so.

Later, we will conduct a question and answer session and instructions will be given at that time.

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.

Okay.

Gabriel A. Katz: Good morning, and thank you all for joining AFC Gamma's earnings call for the fourth quarter and fiscal year ended December 31st, 2023. I'm joined this morning by Leonard Tannenbaum, our Executive Chairman, Daniel Neville, our Chief Executive Officer, Robyn Tannenbaum, our President, and Brandon Hetzel, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded.

Good morning, and thank you all for joining <unk> earnings call for the fourth quarter and fiscal year ended December 31, 2023, I'm joined this morning by Leonard Tannenbaum, Our executive Chairman, Daniel Nevertheless, our Chief Executive Officer, Robin Tannenbaum, our President and Brandon had so our chief financial Officer.

Before we begin I would like to note that this call is being recorded replay information is included in our January 31, 2024 press release and is posted on the Investor Relations portion of <unk> website at AFC Gamma Dot com, along with our fourth quarter and fiscal year 2023 earnings release and Investor presentation.

Gabriel A. Katz: Replay information is included in our January 31, 2024 press release and is posted on the investor relations portion of AFC Gamma's website at afcgamma.com, along with our fourth quarter and fiscal year 2023 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 These statements are subject to inherent uncertainties in predicting future results.

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 2024 and beyond.

These statements are subject to inherent uncertainties in predicting future results. Please refer to FC Gamma is most recent periodic filings with the SEC for certain conditions and significant factors that could cause actual results to differ materially from these forward looking statements and projections.

Leonard Mark Tannenbaum: Please refer to AFC Gamma's most recent periodic filings with the SEC for certain conditions and 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 AFC Gamma's earnings release and investor presentation, available on AFC Gamma's website. The format for today's call is as follows. Len and Dan will provide introductory remarks, an overview of our fourth quarter and full year performance, as well as some strategic commentary. Brandon will then summarize our financial results, and we will then open the lines for Q&A. With that, I will now turn the call over to our Executive Chairman, Leonard Tannenbaum. Thank you.

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 a FC Gamma <unk> earnings release, and Investor presentation available on <unk> website.

The format for todays call is as follows Lennon Dan will provide introductory remarks, an overview of our fourth quarter and full year financial performance as well as some strategic commentary.

<unk> will summarize our financial results and we will then open the lines for Q&A.

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

Leonard Mark Tannenbaum: Good morning, and welcome to the AFC earnings call for the quarter and fiscal year ended December 31st, 2023. I would like to thank everyone for joining us today to discuss our results. For the quarter ended December 31st, 2023, AFC generated distributable earnings of 49 cents per basic weighted average share of common stock. As a reminder, distributable earnings is the primary metric the board considers when declaring AFC's quarterly dividends. The Board of Directors declared a $0.48 dividend per share for the December quarter, which was in line with the previous two quarters.

Thank you.

Morning, and welcome to AMC earnings cost for the quarter and fiscal year ended December 31 2023.

I would like to thank everyone for joining us today to discuss our results.

For the quarter ended December 31, 2023 AFC.

AFC generated distributable earnings of 49 cents per basic weighted average share of common stock.

As a reminder, distributable earnings is the primary metric the board considers when declaring F six quarterly dividend.

The board of directors declared a <unk> 48 dividend per share for the December quarter, which was in line with the previous two quarters.

Leonard Mark Tannenbaum: Since going public, we have generated distributable earnings that have met or exceeded our dividends each quarter and paid out $5.54 per share in dividends, including paying out $2 per share during fiscal 2023. For the full year 2023, AFC paid out approximately 99% of its distributable earnings in the form of dividends. For the first quarter of 2024, the Board of Directors declared a fourth consecutive 48-cent dividend, which will be paid on April 15th to shareholders as of record March 31st, 2024.

Since going public we have generated distributable earnings that have met or exceeded our dividend each quarter and paid out $5 54 per share.

Dividends include.

Including paying out $2 per share during fiscal 2023.

For the full year 2023, AFC paid out approximately 99% of its distributable earnings in the form of dividends.

For the first quarter of 2024, the board of Directors has declared a fourth consecutive 48 dividend.

Which will be paid on April 15th to shareholders as of record.

31 2024.

Leonard Mark Tannenbaum: Since Dan's appointment as CEO in mid-November, the team has been very busy as we continue to evaluate our portfolio with Dan's operating lens and bottoms-up investment approach. I am pleased with the progress the team has made on some of our underperforming assets. As we discussed two weeks ago, AFC will return to its exclusive focus on lending to the cannabis industry after the spinoff of our commercial real estate portfolio is complete. As a reminder, The Commercial Real Estate Portfolio will spin off into an independent, publicly traded REIT, Sunrise Realty Trust, which is expected to trade on the NASDAQ exchange under the ticker symbol SUNS upon completion of the separation. We have decided to pursue this transaction because we believe that both AFC and Suns will be better positioned to grow and realize their full potential as independent, pure play capital providers in the cannabis and commercial real estate space, respectively. The separation will allow each company to focus on its respective portfolio, articulate its own clear investment thesis, and have the flexibility to tailor their business strategies to best capture market opportunities within their specializations.

Since Dan's appointment as CEO in mid November the team has been very busy as we continue to evaluate our portfolio with dance operating lens and bottoms up investment approach.

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

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

As a reminder.

The commercial real estate portfolio will spin off into an independent publicly traded REIT Sunrise Realty Trust, which is expected to trade on the NASDAQ exchange under the ticker symbol S. U N S. Upon completion of the separation.

We have decided to pursue this transaction because we believe that both AFC and SUNS will be better positioned to grow and realize their full potential as independent pure play capital providers in the cannabis and commercial real estate space respectively.

The separation will allow each company to focus on its respective portfolio articulate their own clear investment thesis and have the flexibility to tailor their business strategies to best capture market opportunities within their specialization.

Leonard Mark Tannenbaum: We expect the spinoff to be completed by mid-2024, subject to SEC review, as well as final approval by our Board of Directors. As Executive Chairman and the largest shareholder of both entities post-spinoff, I am very excited about the future of AFC and Sun. CRE debt markets today represent a significant opportunity to capitalize on market dislocations precipitated by the rise in interest rates, declining liquidity, and a pullback of regional banks from CRE lending. We are also seeing a large increase in CRE deal flow in the past few weeks. With that, I will pass it to Dan to discuss our AFC cannabis portfolio. Thanks, Len. Good morning.

We expect the spinoff to be completed by mid 2024 subject to SEC review as well as final approval by our board of directors.

Yeah.

As executive Chairman and the largest shareholder of both both entities post spin off I am very excited about the future for AFC and sons.

CRE debt markets today represent a significant opportunity to capitalize on market dislocations precipitated by the rise in interest rates declining liquidity and a pullback of regional banks for CRE lending.

We are also seeing a large increase in CRE deal flow in the past few weeks.

With that I will pass it to Dan to discuss our AFC candidates portfolio.

Thanks, Glen good morning.

Daniel Neville: I'm excited to be speaking to you on my first earnings call as CEO of AFC. It has been a busy and productive four months since I joined AFC as CEO and dived into our portfolio and future opportunities. Before turning to our portfolio pipeline and the state of the industry, I wanted to take a minute to introduce myself to analysts and investors. I bring over 15 years of leadership experience in the areas of cannabis operations, M&A, and portfolio management. Previously, I was at Ascend Wellness Holdings, a multi-state vertically integrated cannabis operator where I held various roles, including CFO and a stint as interim CEO. I was one of the first employees at Ascend and had the valuable opportunity to help grow the company's operation across seven states to 2200 employees and over $500 million in revenue. Prior to that, I was a managing director at SLS Capital, a special situations hedge fund.

I'm excited to be speaking to you for my first earnings call as CEO of AMC.

It's been a busy and productive four months since I joined KFC, as CEO and dove into our portfolio and future opportunities.

Before turning to the to our portfolio pipeline and the state of the industry I wanted to take a minute to introduce myself to analysts and investors.

I bring over 15 years of leadership experience in the areas of cannabis operations M&A and portfolio management.

Previously I was at ascend wellness holdings.

<unk> state vertically integrated cannabis operator, right held various roles.

Including CFO and his stint as interim CEO.

I was one of the first employees at ascend and had the valuable opportunity to help grow the company's operation across seven states to.

To 'twenty 200 employees and over $500 million in revenue.

Prior to that I was the managing director at SLS capital are special situations had Sean and before that I was an investment banker at credit Suisse.

Daniel Neville: And before that, I was an investment banker at Credit Suisse. Turning to AFC, we are one of the leading debt providers of institutional capital to the cannabis industry, which is a growing $30 billion market with a limited supply of institutional capital. We are seeing our pipeline expand, mainly driven by what we call cannabis 3.0 players. These are entrepreneurs that have founded businesses in cannabis or other industries, are successful, and are now entering or re-entering the cannabis industry.

Turning to AFC.

We are one of the leading debt providers of institutional capital to the cannabis industry, which is a growing 30 billion dollar market with a limited supply of institutional capital.

We are seeing our pipeline expand mainly driven by what we call cannabis three point all players.

These are entrepreneurs that are founded businesses in Canada or other industries.

We're successful.

Now entering or reentering the cannabis industry.

Daniel Neville: Many of these companies are building through a combination of organic growth and opportunistically acquiring distressed assets. We are excited to finance many of these operators that have clean capital stacks and are unburdened with debt, sale leasebacks, or legacy tax liability. As the march toward legalization continues, demand for capital will only increase. Between Ohio, Pennsylvania, Florida, and Virginia, an additional 58 million Americans could gain access to adult-use cannabis in the next few years. Additionally, states like North Carolina, South Carolina, and Kentucky are likely to implement similar medical programs.

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

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

At the March towards legalization continues.

Man for capital will only increase.

Between Ohio, Pennsylvania, Florida, and Virginia, and additional 58 million Americans could gain access to adult use cannabis in the next few years.

Additionally, states like North Carolina, South Carolina, and Kentucky are likely to implement medical programs.

Daniel Neville: This is all incremental demand that will also require significant additional capital to increase growth capacity, production and distribution infrastructure, and retail points of distribution. We see these cannabis 3.0 operators, along with the continued march toward legalization in the U.S., as opportunities to expand AFC's platform in a market that has continually experienced a lack of access to capital. Since joining AFC in November, I have met with and continue to have regular points of contact with all the borrowers in AFC's portfolio. I've done deep dives into six markets, flown over 40,000 miles, and visited and toured 11 cultivations and 28 dispensaries.

This is all incremental demand that will also require significant additional capital to increase grow capacity production and distribution infrastructure and retail points of distribution.

We see these cannabis three point al operators, along with the continued March towards legalization in the U S as the opportunities to expand <unk> platform.

In a market that is continually experienced a lack of access to capital.

Vince joining AFC in November.

I have met with and continue to have regular points of contact with all of the borrowers in <unk> portfolio.

I have done deep dives on six markets.

Loan over 40000 miles and visited and toward 11 cultivation and 28 dispensaries.

Daniel Neville: The main takeaway from my travels is that AFC's portfolio is well positioned in a volatile yet rapidly growing cannabis industry. Our portfolio is concentrated on operators in solid limited license states with attractive supply-demand dynamics. Also, through our existing borrowers, we have good exposure to early-stage and expected near-term adult use transition states, such as Missouri, New Jersey, Ohio, and Pennsylvania.

The main takeaway from my travels does that Afc's portfolio is well positioned in a volatile yet rapidly growing cannabis industry.

Our portfolio was concentrated on operators and solid limited license states with attractive supply demand dynamics.

Also through our existing borrowers we have good exposure to early stage and expected near term adult use transitions.

Rates, such as Missouri, New Jersey, Ohio, and Pennsylvania.

Daniel Neville: I firmly believe that our investment thesis has and will continue to set us up well to generate strong risk-adjusted returns. Turning to our portfolio, we continue to make progress on reducing our exposure to underperforming assets and are actively managing our portfolio. Two borrowers remain in receivership to optimize operations and maximize value for the benefit of all stakeholders.

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

Turning to our portfolio, we continue to make progress on reducing our exposure to underperforming assets and are actively managing our portfolio.

Two borrowers remain in receivership to optimize operations and maximize value for the benefit of all stakeholders.

Daniel Neville: One of our borrowers, Private Company A, has been actively liquidating assets and has so far paid down over $53 million in principal to AFC and syndicate partners, of which $4 million of principal paydown was received during court. As we have discussed during the last several quarters, we are working closely with the subsidiary of private company G, which continues to have cash flow challenges. Last quarter, we mentioned that we modified interest payments for the remainder of 2023 to ensure the borrower had adequate working capital. AFC received the $1 million cash interest that was due in the months of October and November. However, the borrower only made a partial payment for December.

One of our borrowers private company.

<unk> been actively liquidating assets and has so far paid down over $53 million in principle to AFC and syndicate partners.

Which $4 million of principal Paydown was received during the quarter.

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

Last quarter, we mentioned that we modified the interest payments for the remainder of 2023 to ensure the borrower had adequate working capital.

AFC received the $1 million cash interest that was due in the month of October and November.

However, the borrower only made a partial payment for December.

Daniel Neville: The parties have negotiated a joint plan that requires the borrower to make a significant equity contribution and install top operators in each of Pennsylvania and New Jersey to optimize operations in exchange for a reduced interest rate. This will decrease the financial burden of debt service on the borrower in the near term. We also introduced a significant cash sweep for the remainder of the loan that we anticipate will pay down both current and unpaid interest and begin to amortize the loan through maturity. The New Jersey operations will now be fully managed by a chief restructuring officer with significant operating and turnaround experience in the cannabis industry. The borrower will also enter into a management services agreement with one of the top single-state operators in Pennsylvania to both supply and operate their dispensary. With both of these attractive assets in the hands of skilled operators with significant cannabis experience, We anticipate better performance from these assets in the coming quarter. In early January 2024, private company L entered into an agreement to sell its operations in Missouri.

The parties have negotiated a joint plan.

Requires the borrower to make a significant equity contribution and install top operators in Egypt, Pennsylvania, and New Jersey to optimize operations and exchange for reduced interest rate.

This will decrease the financial burden of debt service on the borrower in the near term.

We also introduced a significant cash sweep for the remainder of the loan that we anticipate will pay down both current and unpaid interest and begin to amortize the loan through maturity.

The New Jersey operations will now be fully managed by a chief restructuring officer with significant operating and turnaround experience in the cannabis industry.

The borrower will also enter into a management services agreement with one of the top single state operators in Pennsylvania to both supply and operate their dispensaries.

With both of these attractive assets in the hands of skilled operators with significant cannabis experience, we anticipate better performance from these assets in the coming quarters.

In early January 2020 for private company L entered into an agreement to sell their operations in Missouri.

Daniel Neville: This sale will translate into a $20 million reduction in principal on private companies alone, offset by $10 million in future draws to fund their cultivation build-out in Ohio. On January 3, 2024, the company received the first portion of funds, leading to a reduction in principal of $11.4 million. We expect to receive the remaining $8.3 million by the end of the first half of 2020. Turning to the originations front, we have been quite active in states such as Ohio, Pennsylvania, and Florida, where transaction activity picked up due to the potential for adult-use cannabis transitions in the near term. Additionally, we are pursuing opportunities in states such as Georgia and Alabama where medical programs have recently been implemented.

This sale will translate into a $20 million reduction in principal on private companies al long.

Offset by $10 million in future draws to fund their cultivation build out in Ohio.

On January three 2024, the company received the first portion of funds leading to a reduction in principal of 11 4 million.

We expect to receive the remaining $8 3 million by the end of the first half of 2024.

Turning to the originations front.

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

Additionally, we are pursuing opportunities in states, such as Georgia, and Alabama, where medical programs were recently implemented.

Daniel Neville: We currently have a signed cannabis term sheet and are in the documentation phase for a borrower that we are excited to lend to on a strong limited license date. We look forward to updating our analysts and investors on the transaction once closed, which we expect will be in the next month or so. As of March 1st, 2024, our active pipeline of cannabis deals is currently $279 million. I am particularly pleased with the quality of the operators and the deals in the pipeline. It's largely comprised of people who have done it before, know how to execute, and we're confident we'll be able to create value for all of their stakeholders.

We currently have assigned cannabis term sheet and are in documentation phase for a borrower that we're excited to learn too in a <unk>.

Strong limited license states.

We look forward to updating our analysts and investors on the transaction once closed.

We expect we'll be in the next month or so.

As of March one 2020 for our active pipeline of cannabis deals is currently $279 million.

I am, particularly pleased with the quality of the operators and the deals in the pipeline.

It's largely comprised of people who have done it before.

Know how to execute.

And we're confident we'll be able to create value for all of their stakeholders.

Daniel Neville: We continue to have liquidity to make additional investments, and given the limited supply of institutional capital, we believe this will allow us to move up the quality curve while still achieving mid to high teens IRR. We firmly believe that AFC is uniquely positioned to be the go-to provider of capital for this growing industry. Looking ahead in 2024, my key priorities are, first, to substantially address the issues at select portfolio companies through an active portfolio management approach.

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

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

Looking ahead in 2024 my key priorities are first.

To substantially address the issues at select portfolio companies through an active portfolio management approach.

Daniel Neville: Second, to continue to underwrite new deals with an operator's eye and diversify our portfolio. And third, and finally, to originate over $100 million of new deals with strong risk-adjusted returns. Now, I'll turn it over to Brandon to discuss our financials. Thank you, Dan.

Second to continue to underwrite new deals with an operator's high.

And diversify our portfolio.

Third and finally to originate over $100 million of new deals with strong risk adjusted returns.

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

Thank you Dan we.

Brandon Hetzel: We are pleased to report strong results in the fourth quarter and fiscal year 2022. Beginning with the quarterly results, for the quarter ended December 31, 2023, we generated net interest income of $16 million and distributable earnings of $10 million, for 49 cents per basic weighted average common share. We had a gap net loss of $9.2 million, or $0.45 per basic weighted average common share. The difference between our distributable earnings of $10 million and our gap net loss of $9.2 million is mainly driven by an increase in our unrealized losses on loans held at fair value of $7.4 million and an increase in our CECL reserve of $12 million for the fourth quarter on an annual basis for the year ended December 31st, 2023.

We are pleased to report strong results in the fourth quarter and fiscal year 2023.

Beginning with the quarterly results for the quarter ended December 31, 2023, regenerated net interest income of 16 million and distributable earnings of $10 million for 49 per basic weighted average common share.

And had a GAAP net loss of $9 2 million or <unk> 45 per basic weighted average common share.

The difference between our distributable earnings of $10 million and our GAAP net loss of $9 2 million is mainly driven by an increase in our unrealized losses on loans held at fair value of $7 4 million and an increase in our seasonal reserve of $12 million for the fourth quarter.

On an annual basis for the year ended December 31, 2023, we generated net interest income of $64 2 million and distributable earnings of $41 4 million or $2.04 per basic weighted average common share.

Brandon Hetzel: We generated net interest income of $64.2 million and distributable earnings of $41.4 million, or $2.04 per basic weighted average common share, and had gap net income of $21 million, or earnings of $1.02 per basic weighted average common share. As previously mentioned, we believe providing strudel earnings is helpful to shareholders in assessing the overall performance of AFC's business. Distributable earnings represent the net income computed in accordance with GAAP, excluding non-cash items such as stock compensation expense, any unrealized gains or losses, provision for current expected credit losses, also known as CECL, taxable REIT subsidiary income or loss, net of dividends, and other non-cash items recorded in net income or loss for the period.

And had GAAP net income of $21 million or earnings of $1 <unk> per basic weighted average common share.

As previously mentioned, we believe providing real earnings is helpful to shareholders in assessing the overall performance of Amc's business distributable earnings represent the net income computed in accordance with GAAP, excluding noncash items, such as stock compensation expense and the unrealized gains.

Our losses provision for current expected credit losses also known as seasonal taxable REIT subsidiary income or loss net of dividends and other noncash items recorded in net income or loss for the period.

Brandon Hetzel: We ended the fourth quarter of 2023 with $388.3 million of principal outstanding spread across 12 borrowers. Subsequent to December 31, 2023, AFC committed $56.4 million, of which $48.9 million was funded, across two commercial real estate mezzanines. And we continue to see attractive theoretical deals and have an active pipeline of 701 million. As of March 1, 2024, our portfolio consisted of $416.3 million of principal outstanding across 14 loans. The Weighted Average Portfolio Yield to Maturity, which is measured for each loan over the life of such loan, was approximately 21% as of December 31, 2023 and March 1, 2021.

We ended the fourth quarter of 2023 with $388 3 million of principal outstanding spread across 12 borrowers subsequent to December 31 2023.

Z committed $56 4 million of which $48 9 million was funded.

Across two commercial real estate mezzanine loans, and we continue to see attractive theory deals and have an active pipeline of $701 million.

As of March one 2024 high portfolio consisted of $416 3 million of principal outstanding across 14 loans the.

The weighted average portfolio yield to maturity, which is measured for each loan over the life of such loan was approximately 21% as of December 31, 2023 and March one 2024.

Brandon Hetzel: Next, let's take a look at our balance sheet, which remains strong. As of December 31, 2023, we had total assets of $466.6 million, including cash and cash equivalents of $121.6 million, and had $42 million drawn on our line of credit, which was subsequently repaid in full on January 2nd, 2021. Our line of credit provides us with up to $60 million in available funds that can be drawn as needed.

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

As of December 31, 2023, we had total assets of $466 6 million, including cash and cash equivalents of $121 6 million.

And had $42 million drawn on our line of credit.

Which was subsequently repaid in full on January <unk> 2024.

Our line of credit provides us with up to $60 million and available funds that can be drawn as needed.

Brandon Hetzel: Currently, the majority of our cash is earning interest of approximately 4.5 to 5.3 percent. As of December 31, 2023, the CECL reserve was $26.4 million, or approximately 8.7% of our loans at carrying value, which increased by $12 million, or 4%, from the September 30, 2023 reserve of $14.4 million, or 4.7%. In addition to the increased CECL reserve, during the fourth quarter, we had an increase in our unrealized losses on loans at fair value of $7.4 million.

Currently the majority of our cash is earning interest of approximately $4 525, 3%.

As of December 31, 2023, the seasonal reserve was $26 4 million or approximately eight 7% of our loans at carrying value, which increased $12 million or 4% from the September 32023 reserve of $14 4 million or four 7%.

In addition to the increased seasonal reserve during the fourth quarter, we had an increase in our in our unrealized losses.

Our loans at fair value of $7 4 million.

Brandon Hetzel: We currently have four borrowers on non-accrual, which represents 25% of our portfolio. As of December 31st, 2020, our total shareholder equity was $320.1 million, and our book value per share was $15.64.

We currently have four borrowers on non accrual, which represents 25% of our portfolio.

As of December 31, 2023, our total shareholder equity was $321 million and our book value per share was $15 64.

Brandon Hetzel: On January 12, 2024, AFC paid a dividend of 48 cents per common share for the fourth quarter to shareholders of record as of December 31, 2023. For the fiscal year 2023, we paid out dividends of approximately 99% of our distributable earnings. As a reminder, on an annual basis, our dividend policy is to pay between 85% and 100% of our distributable earnings over the year.

On January 12, 2020 for ASC paid a dividend of 48 per common share for the fourth quarter to shareholders of record as of December 31, 2023.

For the fiscal year 2023, we paid out dividends of approximately 99% of our distributable earnings.

As a reminder, on an annual basis, our dividend policy is to pay between 85% and 100% of distributable earnings over the year.

Operator: For the first quarter of 2024, the Board of Directors declared a $0.48 dividend, which will be paid on April 15, 2024, to shareholders of record as of March 31, 2024. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Again, that is Star 1 1 to ask a question. Please stand by while we compile the Q&A roster.

For the first quarter of 2024, the board of directors declared a <unk> 48 dividend, which will be paid on April 15, 2024 to shareholders of record as of March 31 2024.

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

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Withdraw your question. Please press star one again.

Again that is star one to ask a question.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Pablo as monarch, two monarch and associates.

Patients on all the progress the company is making.

Just regarding the comment you made in the prepared remarks or the regional banks, putting out to the industry can you give more color or context on that.

Daniel Neville: Our first question comes from the line of Pablo Zwanak with Zwanak & Associates. Congratulations on all the progress the company's made. Just regarding the comment I think you made in the prepared remarks about the regional bank, thank you so much! Yeah, so Pablo, thanks for the question. This is Dan.

The one hand, we saw by need them getting more and more active in this space some refinancing there.

The <unk> report talked about first citizens bank, 19th largest bank entering this space in terms of lending.

I don't know if those are the exceptions or motivate trend. If you can just give more color in terms of the competition youre seeing from from the banking side. Thank you.

Yes, so pablo thanks for the question this is Dan.

Daniel Neville: You know, you are seeing a little bit more activity; Needham did come into the space, they were looking to grow their loan book ahead of their IPO transaction. Our understanding is that now that they've deployed some of the capital into the space, they're kind of taking a step back and digesting a bit. For the most part, Needham has been lending to larger, you know, public companies. Those companies often do not have the real estate coverage that we require for REIT status.

You are seeing a little bit more activity Needham did come into the space. They were looking to grow their loan book ahead of their IPO transaction.

Our understanding is that now that they've deployed some capital into the space. They are kind of taking a step back and digesting a bet.

For the most part Needham has been lending to larger.

Public companies.

Those companies often do not have the real estate coverage that we require for our REIT status.

Daniel Neville: So I still see very good opportunities, and we're not really running into some of the commercial banks like Needham or others that have played in the space. And the second thing I'd say is that this is a $30 billion industry that's sitting within a $100 billion industry between the legal and illicit market. And so as more and more states flip, there's going to be a lot more capital that is required. I was just thinking last night that North Carolina is a great example.

So I still see very good opportunities and we're not really running into some of the commercial banks like Needham or others that are played in this space.

And the second thing I'd say is that this is a $30 billion industry.

That's sitting within a $100 billion industry between the legal and illicit market and so as more and more states flat, there's going to be a lot more capital that is required.

I was just thinking last night North Carolina is a great example.

Daniel Neville: That state is going to have 10 verticals and 13 million people. It's a very attractive market, and it probably will implement a medical program sometime in the next year or two. Those 10 verticals come with eight stores a piece.

That state is going to have 10 verticals 13 million people, it's a very attractive market and it probably implement some medical program sometime in the next year or two.

Those 10 verticals come with eight stores that piece.

Daniel Neville: So one vertical is $20 million for a grow and $2 million per store. That's $36 million of capital multiplied by the 10 verticals. You know, when we look at a state flipping and $360 million of capital, incremental capital demand, that seems like a pretty good opportunity. And I think there continues to be a mismatch between the supply of available institutional capital and the demand for that capital. Thank you, that was a good call. Maybe I can ask you a follow-up?

So one vertical is $20 million for our grow and $2 million per store, that's $36 million of capital multiplied by the 10 verticals.

Now when we look at a state flipping and $360 million of capital incremental capital demand.

That seems like a pretty good opportunity and I think there continues to be a mismatch between the supply of available ones to institutional capital and the demand for that capital.

Thank you that's good color and maybe it may as a follow up.

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

In terms of the maybe for Linda Robin but.

Maybe just more context of all the people that you've made right a year ago. The idea was that you were exiting and diversify into commercial real estate and then of course, you'd obviously doubling down on kind of abuse and then hire Dan.

What do you see that Youre seeing right at that I guess made you change on the one hand, we see more deflation more licensing in some states, creating more competition. So a tougher industry conditions, but of course on the other and no progress at the federal level, but on the other hand of course, we are seeing more states are going maybe you called or going direct right, but just just remind us of the.

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

Why the change and I guess why the more apparently more positive view about industry trends that made you a refocus on kind of as again. Thank you.

Leonard Mark Tannenbaum: I think the positives that happened were Ohio going wreck, Pennsylvania probably going wreck, and really a very good experience that we had in Missouri with our borrowers, and that's really helped out a lot with the quality of their earnings. I'm actually very excited about Georgia. I think Georgia's going to be a great state, too.

I think the positives that happened, whereas Ohio going rack, Pennsylvania, probably going rack.

And and really a very good experience that we had in Missouri.

With our borrowers and.

And that's really helped out a lot of the quality of the earnings I'm actually very excited about Georgia, I think George is going to be a great state to think there's a number of other positive states on the horizon and of course, where we're sitting in Florida, where where governor has changed his view after he has left the.

Leonard Mark Tannenbaum: I think there's a number of other positive states on the horizon, and of course, where we're sitting in Florida, where the governor has changed his view after he left the presidential race and started to support wreck here. It's years away, by the way, but that dynamic creates a lot of demand, as Dan sort of outlined, and so we see that, and plus you see the cannabis 3.0 players. I've literally said this for six consecutive quarters: we're going to wait for cannabis 3.0. 2.0 is done. I think a lot of the legacy players have a lot of problems.

The presidential race and started to support.

Here is years away by the way, but that dynamic creates a lot of demand as Dan sort of outlined and so we see we see that in place you see that Canada. Three players have literally said this for six consecutive quarters, we're sitting we're going to wait for the candidates III <unk>.

<unk> has done I think a lot of the legacy players have a lot of problems, we're happy to get the liquidations and exits that we did we think we did a good job Dan has done a phenomenal job.

Leonard Mark Tannenbaum: We're happy to get the liquidations and exits that we did. We think we did a good job. Dan's done a phenomenal job, really, from an operating lens, taking a look at their operating businesses, what they're worth, and how they should be run, and that's a very different approach.

Really from an operating lens, taking a look at these the operating businesses, what they're worth and how they should be run.

And that's a very different approach, maybe I should have done that a year or two ago, but happy to have Dan here now.

Leonard Mark Tannenbaum: Maybe I should have done that a year or two ago, but happy to have Dan here now with that approach, so I'm excited about cannabis, and I'm equally excited about real estate. Look, our shareholders, they have to see if we're going to own about one-third of their, with their stock in Sons, and Sons will be spun out, and I'm pretty excited about that too. The opportunity in real estate, I'm a direct lender by background, I built a $5 billion direct lending industry, direct lending also, direct lending in real estate, direct lending in private equity, same thing, the regionals are pulled back, they are taking lower LTCs, and that opportunity set is going to be phenomenal for Sons, and we're excited about, I'm excited about the opportunity set there, and the cannabis, so I think you've got two really great opportunities that are going to be led by two great leaders.

With that approach so I am excited by canvas and I'm equally excited about real estate look our shareholders AFC is we're going to own.

One third of their of their.

Of their stock and sons and sense will be spun out.

And I'm pretty excited about that to the opportunity real estate I'm, a direct lender by background and build a $5 billion direct lending industry direct lending also direct lending real estate direct lending in private equity. It's same thing the regionals are pulled back.

They are taking lower ltvs and that opportunity set is going to be phenomenal for SUNS and we're excited about I am excited about the opportunity set there and in Canada. So I think you've got to really great opportunities that are going to be led by two great leaders.

Operator: Thank you, that's very helpful. That concludes today's question and answer session. This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you that's very helpful. Thank you.

That concludes today's question and answer session.

This concludes today's conference call. Thank you for participating.

You may now disconnect.

Okay.

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Okay.

Okay.