Q2 2024 AFC Gamma Inc Earnings Call
Speaker Change: Good morning, and welcome to Advanced Flower Capital's second quarter 2024 earnings call. At this time, all participants are in a listen-only mode.
Operator: King's Call. At this time, all participants are in a listening mode. Later, we will conduct the question-and-answer session, and instructions will be given at that time.
Operator: At this time, all participants are in a listen-only mode. I would now like to turn the call over to Gabriel Katz, Chief Legal Officer. Please go ahead.
Operator: As a reminder, this call has been recorded.
Gabriel Katz: 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.
Gabriel Katz: I would now like to turn the call over to Gabriel Katz, Chief Legal Officer. Please go ahead.
Gabriel Katz: Good morning, and thank you all for joining AFC's earnings call for the quarter ended June 30, 2024. I'm joined this morning by 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.
Gabriel Katz: Good morning, and thank you all for joining AFC's earnings call for the quarter ended June 30, 2024. I'm joined this morning by Daniel Neville, our Chief Executive Officer, Robyn Tannenbaum, our President, and Brandon Hetzel, our Chief Financial Officer.
Speaker Change: Good morning, and thank you all for joining AFC's earning call for the quarter ended June 30, 2024. I'm joined this morning by Daniel Neville, our Chief Executive Officer, Robyn Tannenbaum, our President, and Brandon Hetzel, our Chief Financial Officer.
Gabriel Katz: Before we begin, I would like to note that this call is being recorded. Replay information is included in our July 15, 2024 press release and is posted on the investor relations portion of AFC's website at advancedflowercapital.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, anticipated market developments, portfolio yield, and financial performance in 2024 and beyond.
Gabriel Katz: Replay information is included in our July 15, 2024, press release and is posted on the Investor Relations portion of AFC's website at advancedflowercapital.com, along with our second quarter earnings release and investor presentation. Today's conference call includes four looking statements and projections that reflect the company's current views with respect to, among other things, anticipated market developments, portfolio yield, and financial performance in 2024 and beyond. These statements are subject to inherent uncertainties in predicting future results.
Speaker Change: Before we begin, I would like to note that this call is being recorded.
Speaker Change: Replay information is included in our July 15, 2024 press release and is posted on the investor relations portion of AFC's website.
Speaker Change: at advancedflowercapital.com, along with our second quarter earnings release and investor presentation.
Gabriel Katz: These statements are subject to inherent uncertainties in predicting future results. Please refer to AFC'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 to net income, the most comparable GAAP measure, can be found in AFC's earnings release and investor presentation on AFC's website.
Speaker Change: Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, anticipated market developments, portfolio yield, and financial performance in 2024 and beyond.
Gabriel Katz: Please refer to AFC'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. Reconciliation to net income, the most comparable GAAP measure, can be found in AFC's earnings release and investor presentation on AFC's website.
Speaker Change: These statements are subject to inherent uncertainties in predicting future results. Please refer to AFC'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.
Speaker Change: During this call, we will refer to Distributable Earnings, which is a non-GAAP financial measure. Reconciliations to Net Income, the most comparable GAAP measure, can be found in AFC's earning release and investor presentation on AFC's website.
Gabriel Katz: The format for today's call is as follows. Robyn will start by discussing our spin-off, then Dan will provide an overview of our second quarter 2024 performance and an update on our portfolio. Brandon will then conclude with a summary of our financial results, and we will then turn to open the line for Q&A.
Gabriel Katz: The format for today's call is as follows. Robyn will start by discussing our spinoff. Then Dan will provide an overview of our second quarter 2024 performance and an update on our portfolio. Brandon will then conclude with a summary of our financial results. And we will then open the line for Q&A. With that, I will now turn the call over to our president, Robyn Tannenbaum.
Speaker Change: The format for today's call is as follows. Robyn will start by discussing our spinoff.
Robyn Tannenbaum: Then Dan will provide an overview of our second quarter 2024 performance and an update on our portfolio. Brandon will then conclude with a summary of our financial results. And we will then open the line for Q&A. With that, I will now turn the call over to our president, Robyn Tannenbaum.
Robyn Tannenbaum: With that, I will now turn the call over to our President, Robyn Tannenbaum. Thanks, Gabe, and good morning to all our investors and analysts that have joined us today. We are excited to announce that, following the successful spin-off of our commercial real estate portfolio on July 9, 2024, AFC has now fully transitioned to being a pure-play cannabis lender. This strategic move allows us to focus solely on the cannabis sector. We believe that this positions us to more effectively capitalize on the opportunities in the cannabis market by concentrating our lending efforts on one industry. Additionally, this should allow us to target specific investor bases more effectively.
Robyn Tannenbaum: Thanks Gabe, and good morning to all our investors and analysts that have joined us today. We are excited to announce that following the successful spinoff of our commercial real estate portfolio on July 9th, 2024, AFC has now fully transitioned to being a pure play cannabis lender. This strategic move allows us to focus solely on the cannabis sector. We believe that this positions us to more effectively capitalize on the opportunities in the cannabis market by concentrating our lending efforts on one industry.
Robyn Tannenbaum: Thanks, Gabe, and good morning to all our investors and analysts that have joined us today.
Speaker Change: We are excited to announce that following the successful spinoff of our commercial real estate portfolio on July 9, 2024, AFC has now fully transitioned to being a pure play cannabis lender.
Speaker Change: This strategic move allows us to focus solely on the cannabis sector. We believe that this positions us to more effectively capitalize on the opportunities in the cannabis market by concentrating our lending efforts on one industry.
Robyn Tannenbaum: Additionally, this should allow us to target specific investor bases more effectively. Today, we are reporting on our second quarter results, which were pre-spin and include results from both the cannabis and commercial real estate lending portfolio. I'll now turn it over to Dan to discuss our second quarter results and some milestones we've achieved.
Robyn Tannenbaum: Today, we are reporting on our second quarter results, which were pre-spin and include results from both the cannabis and commercial real estate lending portfolio.
Speaker Change: Additionally, this should allow us to target specific investor bases more effectively. Today, we are reporting on our second quarter results, which were pre-spin and include results from both the cannabis and commercial real estate lending portfolio.
Daniel Neville: I will now turn it over to Dan to discuss our second quarter results and some milestones we've achieved. Thanks, Robyn, and good morning. This quarter was marked by strong performance and several key achievements in our portfolio management and origination efforts.
Speaker Change: I'll now turn it over to Dan to discuss our second quarter results and some milestones we've achieved.
Daniel Neville: Thanks, Robyn, and good morning. This quarter was marked by strong performance and several key achievements in our portfolio management and origination. I'll start my remarks with a brief overview of the results from the spin-off, then turn to portfolio management and origination, followed by commentary on the state of the industry and capital markets before concluding. For the second quarter, AFC generated distributable earnings of $0.56 per basic weighted average share of common stock.
Dan: Thanks Robyn and good morning. This quarter was marked by strong performance and several key achievements in our portfolio management and origination efforts.
Daniel Neville: I will start my remarks with a brief overview of results on the spin-off, then turn to portfolio management and origination, followed by commentary on the state of the industry and capital markets before concluding. For the second quarter, AFC generated distributable earnings of 56 cents per basic weighted average share of commons. Stock. As a reminder, distributable earnings is the primary metric the Board of Directors considers when declaring AFC's quarterly dividend. The Board declared a fifth consecutive 48-cent dividend, which was paid on July 15, 2024, to shareholders of record as of June 24, 2024. Also, in connection with the spin-off, the Board declared a special dividend of 15 cents, which was paid on July 15, 2024, to shareholders of record as of July 8, 2024.
Daniel Neville: The board declared a fifth consecutive $0.48 dividend, which was paid on July 15, 2024, to shareholders of record as of June 24, 2021. Also, in connection with the spinoff, the board declared a special dividend of $0.15, which was paid on July 15, 2024, to shareholders of record as of July 8, 2020. Since going public, we have generated distributable earnings that met or exceeded our dividend each quarter and paid out $6.65 in dividends per share.
Dan: I'll start my remarks with a brief overview of results in the spinoff, then turn to portfolio management and origination, followed by commentary on the state of the industry and capital markets before concluding.
Dan: For the second quarter, AFC generated distributable earnings of $0.56 per basic weighted average share of common stock.
Dan: As a reminder, distributable earnings is the primary metric the Board of Directors considers when declaring AFC's quarterly dividend.
Dan: The board declared a fifth consecutive 48-cent dividend, which was paid on July 15, 2024, to shareholders of record as of June 24, 2024.
Dan: Also, in connection with the spinoff, the board declared a special dividend of 15 cents, which was paid on July 15, 2024, to shareholders of record as of July 8, 2024.
Daniel Neville: Since going public, we have generated distributable earnings that met or exceeded our dividend each quarter and paid out $6.65 in dividends per share. Going forward, the Board of Directors plans to continue to declare quarterly dividends on its normal cadence.
Dan: Since going public, we have generated distributable earnings that met or exceeded our dividend each quarter and paid out $6.65 in dividends per share.
Daniel Neville: Going forward, the Board of Directors plans to continue to declare quarterly dividends on its normal cadence. When I joined AFC last November, I said that my three key priorities were to one, reduce exposure to underperforming credits through active portfolio management, to reinvigorate the origination engine, and three, to enhance our underwriting.
Dan: Going forward, the Board of Directors plans to continue to declare quarterly dividends on its normal cadence.
Daniel Neville: When I joined AFC last November, I said that my three key priorities were to one, reduce exposure to underperforming credits through active portfolio management; two, to reinvigorate the origination engine; and three to enhance our underwriting. Since then, we've made significant progress on each priority highlighted by a successful quarter with several notable loan exits. I am extremely pleased to announce that in June, we successfully exited our largest credit facility, an $84 million loan to subsidiary of public company H. During our last earnings call, we highlighted that the borrower failed to make its April interest payment in May.
Speaker Change: When I joined AFC last November , I said that my three key priorities were to, one, reduce exposure to underperforming credits through active portfolio management,
Speaker Change: 2. to reinvigorate the origination engine and 3. to enhance our underwriting
Daniel Neville: Since then, we've made significant progress on each priority, highlighted by a successful quarter with several notable moments. I am extremely pleased to announce that in June, we successfully exited our largest credit facility, an $84 million loan to a subsidiary of Public Company Inc. during our last earnings call. We highlighted that the borrower failed to make its April interest payment in May.
Speaker Change: Since then, we've made significant progress on each priority highlighted by a successful quarter with several notable loan exits.
Speaker Change: I am extremely pleased to announce that in June , we successfully exited our largest credit facility, an $84 million loan to subsidiary of public company H.
Daniel Neville: Less than one month later, we sold the loan to a third party at par plus accrued interest, including default. This outcome was the result of months of very active portfolio management by the AFC team and generated a 19.9% internal rate of return over the life of the line. This exit underscores our commitment to generating strong returns for our shareholders and taking a hands-on approach to managing complex credit. I'm also excited to report that in May, Private Company C made a final prepayment on its $24 million loan via Access Cash Flow Suite, with the last $3.5 million prepaid this past quarter.
Daniel Neville: Less than one month later, we sold the loan to a third party at par plus accrued, including default interest. This outcome was the result of months of very active portfolio management by the AFC team, and generated a 19.9% internal rate of return over the life of the loan. Disacted underscores our commitment to generating strong returns for our shareholders and taking a hands-on approach to managing complex credits. I'm also excited to report that in May, private companies seem made a final prepayment on its $24 million loan via excess cash flow sweeps, with the last $3.5 million prepaid this past quarter.
Daniel Neville: This exit generated an impressive 25.5% IRR over the life of the loan.
Daniel Neville: This exit generated an impressive 25.5% IRR over the life of the loan. Additionally, in prior quarters, we noted that private company B was in receivership following the $19 million loan maturing in September 2020. We are pleased to announce that in June, we sold our loan at par plus accrued interest, including exit fees. Concurrent with the sale, we provided a $15 million loan to the purchasers to finance a portion of the acquisition secured by the same collateral.
Speaker Change: with the last $3.5 million prepaid this past quarter.
Daniel Neville: Additionally, in prior quarters, we noted that private company B was in receivership following the $19 million loan maturing in September 2023. We are pleased to announce that in June, we sold our loan at par plus accrued, including exit. Fees. In current with the sale, we provided a $15 million loan to the purchasers to finance a portion of the acquisition, secured by the same collateral. Our current portfolio has a weighted average yield to maturity of 19%. And as you can see from these two exits, we have recently generated an IRR at or above the weighted average yield to maturity on certain credit facilities.
Speaker Change: Additionally, in prior quarters, we noted that Private Company B was in receivership following the $19 million loan maturing in September 2023.
Speaker Change: We are pleased to announce that in June , we sold our loan at par plus accrued, including exit fees.
Daniel Neville: Our current portfolio has a weighted average yield to maturity of 19%, and as you can see from these two exits, we have recently generated an IRR at or above the weighted average yield to maturity on certain credit facilities. We will look to redeploy this capital into solid credits at attractive yields, while also further diversifying our portfolio. As of June 30, 2024, we had $1.94 per share in unrealized losses in the CECL
Speaker Change: Our current portfolio has a weighted average yield to maturity of 19% and as you can see from these two exits we have recently generated an IRR at or above the weighted average yield to maturity on certain credit facilities.
Daniel Neville: We will look to redeploy this capital into solid credits at attractive yields, but also further diversifying our portfolio. As of June 30th, 2024, we had $1.94 per share in unrealized losses in CISO reserves. The positions we exited this quarter had CISO reserves in unrealized losses of $0.29 per share associated with them. By selling these positions at par, the $0.29 per share of reserves in unrealized losses were added back to book value. We believe we are appropriately reserved today.
Daniel Neville: The positions we exited this quarter had CECL reserves and unrealized losses of 29 cents per share associated with them. By selling these positions at par, the 29 cents per share of reserves and unrealized losses were added back to book value.
Daniel Neville: We believe we are appropriately reserved today, and while we have generated positive outcomes today, we will continue to be laser focused on actively managing the portfolio to unlock additional value for our shareholders. The subsidiary of private company G continues to make steady progress. Since we entered into the Forbearance Agreement in March 2024, the borrower has infused $3 million of additional equity capital and has paid over $3.9 million of interest to AFC. Additionally, there is significant accrued interest on this law, which, if paid in cash, could enhance our return.
Daniel Neville: And while we have generated positive outcomes today, we will continue to be laser-focused on actively managing the portfolio to unlock additional value for our shareholders. Subciteria of private company G continues to make steady progress. Since we entered into the four-bearance agreement in March 2024, the over $3.9 million of interest to AFC. Additionally, there is significant accrued interest on this loan, which, if paid in cash, put in hands are returns. With the experienced operators we have put in place, we continue to see improved performance at the boroughs' Pennsylvania and New Jersey operations. In just over three months, the New Jersey Cultivation Facility has gone from less than 25% planted without CO2 to fully planted with CO2 fully operational, and we expect the laving kitchen to be online sometime in the fourth quarter.
Speaker Change: We believe we are appropriately reserved today, and while we have generated positive outcomes today, we will continue to be laser-focused on actively managing the portfolio to unlock additional value for our shareholders.
Speaker Change: Subsidiary of private company G continues to make steady progress.
Speaker Change: Since we entered into the forbearance agreement in March 2024, the borrower has infused $3 million of additional equity capital and has paid over $3.9 million of interest to AFC.
Daniel Neville: With the experienced operators we have put in place, we continue to see improved performance at the borrower's Pennsylvania and New Jersey operations. In just over three months, the New Jersey Cultivation Facility has gone from less than 25% planted without CO2 to fully planted with CO2 and fully operational, and we expect The Lab and Kitchen to be online sometime in the fourth.
Speaker Change: With the experienced operators we have put in place, we continue to see improved performance at the borrower's Pennsylvania and New Jersey operations.
Speaker Change: In just over three months, the New Jersey Cultivation Facility has gone from less than 25% planted without CO2 to fully planted with CO2 fully operational.
Speaker Change: And we expect the Lab and Kitchen to be online sometime in the fourth quarter.
Daniel Neville: As a result, we expect a significant uptick in biomass produced in one of the tightest wholesale markets in the country. Similarly, in Pennsylvania, the operating partner has driven over a remarkable turnaround in the stores, with sales tripling from the bottom.
Daniel Neville: As a result, we expect a significant uptick in biomass produced in one of the tightest wholesale markets in the. Similarly, in Pennsylvania, the operating partner has driven a remarkable turnaround in the stores, with sales tripling from the bottom. We're very happy with the progress so far and expect New Jersey Wholesale to be firing on all cylinders by the end of the year. On the origination front, we are making substantial progress towards our target of $100 million for 2024 and are confident in meeting or exceeding this target. Year-to-date, we have closed three deals, totaling $57.3 million, with two additional deals in documentation, which would bring us close to our $100 million target. Our current cannabis pipeline is steadily growing and stands at 346.
Speaker Change: Similarly, in Pennsylvania, the operating partner has driven a remarkable turnaround in the stores, with sales tripling from the bottom.
Daniel Neville: We are very happy with the progress so far and expect New Jersey wholesale to be firing on all cylinders by the end of the year.
Speaker Change: We are very happy with the progress so far and expect New Jersey Wholesale to be firing on all cylinders by the end of the year.
Daniel Neville: On the origination front, we are making substantial progress towards our target of $100 million for 2024 and are confident in meeting or exceeding this target. Year-to-date, we have closed three deals totaling 57.3 million with two additional deals and documentation, which would bring the rest close to our $100 million department. Our current cannabis pipeline is steadily growing and stands at 346 million. During the quarter, we are pleased to provide a senior secured credit facility to private company Else, one of the leading brands in the edible space. We are excited to support their growth as they expand further into the East Coast and Midwest.
Speaker Change: On the origination front, we are making substantial progress towards our target of $100 million for 2024 and are confident in meeting or exceeding this target.
Speaker Change: Year-to-date, we have closed three deals, totaling $57.3 million, with two additional deals in documentation, which would bring us close to our $100 million target. Our current cannabis pipeline is steadily growing and stands at $346 million.
Daniel Neville: During the quarter, we are pleased to provide a senior secured credit facility to a private company, one of the leading brands in edibles. We are excited to support their growth as they expand further into the East Coast and Midwest. This transaction demonstrates our ability to provide flexible and tailored financing solutions to meet the unique requirements of our borrowers at all stages of their growth. I'd now like to provide some commentary on the industry before concluding my remarks.
Speaker Change: During the quarter we are pleased to provide a senior secured credit facility to private company O, one of the leading brands in the edible space.
Speaker Change: We are excited to support their growth as they expand further into the East Coast and Midwest. This transaction demonstrates our ability to provide flexible and tailored financing solutions that meet the unique requirements of our borrowers at all stages of their growth.
Daniel Neville: This transaction demonstrates our ability to provide flexible and tailored financing solutions that meet the unique requirements of our borrowers at all stages of their growth.
Daniel Neville: I now like to provide some commentary on the industry before concluding my remarks. The march toward legalization continued yesterday with the launch of adult use sales in Ohio. Ohio was a 500 million dollar medical market with a very low medical patient penetration. Pennsylvania has a similar population with a medical program more than triple in size at 1.5 billion. As a result of this low penetration, we expect to see a strong flip for existing players, including a few of our borrowers. The start of a U sales in Ohio, the potential for Florida and Pennsylvania to flip in the next two years, and the start up of the NOVO medical programs in Alabama and Kentucky drive our optimism around the industry growth, and more importantly, the increasing demand for capital over the coming years.
Daniel Neville: The march toward legalization continued yesterday with the launch of adult youth sales in Ohio. Ohio was a $500 million medical market with a very low medical patient penetration. Pennsylvania has a similar population, but its medical program is more than triple in size at 1.5 billion.
Speaker Change: The march toward legalization continued yesterday with the launch of adult use sales in Ohio. Ohio was a 500 million dollar medical market with a very low medical patient penetration.
Daniel Neville: As a result of this low penetration, we expect to see a strong flip for existing players, including a few of our borrowers. The start of AU sales in Ohio, the potential for Florida and Pennsylvania to flip in the next two years, and the startup of the Novo Medical Programs in Alabama and Kentucky drive our optimism around the industry growth and, more importantly, the increasing demand for capital over the coming turn to the capital markets.
Speaker Change: As a result of this low penetration, we expect to see a strong flip for existing players, including a few of our borrowers.
Speaker Change: The start of AU sales in Ohio. The potential for Florida and Pennsylvania to flip in the next two years.
Daniel Neville: Turning to the capital markets, two large tier two public companies recently refinanced existing term loans, each at an all-in yield of a little over 14%. One of these borrowers refinanced 2021 vintage debt at a 9.8% yield, resulting in a 400 basis point increase in the spread versus where debt was raised in 2021. This increase in yields is in part due to industry performance since 2021, but is also due to the increase in rates generally over the past two years. All else being equal, if larger public companies are issuing at 14%, then private companies should have wider yields.
Daniel Neville: Two large Tier 2 public companies recently refinanced existing term loans, each at an all-in yield of a little over 14%. One of these borrowers refinanced 2021 vintage debt at a 9.8% yield, resulting in a 400 basis point increase in the spread versus where debt was raised in 2020. This increase in yields is in part due to industry performance since 2021 but is also due to the increase in rates generally over the past two years.
Speaker Change: Turning to the capital markets.
Speaker Change: Two large Tier 2 public companies recently refinanced existing term loans, each at an all-in yield of a little over 14%.
Speaker Change: One of these borrowers refinanced 2021 vintage debt at a 9.8% yield, resulting in a 400 basis point increase in the spread versus where debt was raised in 2021.
Daniel Neville: All else being equal, if larger public companies are issuing at 14%, then private companies should have wider, With that said, we are happy with the returns we generate and are going to focus on moving up the quality curve while still targeting mid- to high-teens IRR, as opposed to reaching. Between these refinancings, the adult youth and medical expansion, and the recent uptick in M&A activity, we expect demand for debt capital to remain robust and the supply-demand imbalance for that capital to persist with the spinoff of our commercial real estate business.
Speaker Change: All else being equal, if larger public companies are issuing at 14%, then private companies should have wider yields.
Daniel Neville: With that said, we are happy with the returns we generate and are going to focus on moving up the quality curve while still targeting mid-to-high teens IRRs, as opposed to reaching on yield. Between these refinancing, adult youth and medical expansions, and the recent uptick in M&A activity, we expect demand for debt capital to remain robust and the supply-demand imbalance for that capital to persist. With lending to the cannabis industry, we remain confident in our ability to continue to deliver strong financial performance and generate value for our share. Holders. We are well positioned to capitalize on the growing opportunities in the industry and believe the capital supply-demand imbalance will allow us to deliver attractive, risk-adjusted returns.
Speaker Change: With that said, we are happy with the returns we generate and are going to focus on moving up the quality curve while still targeting mid to high teens IRRs as opposed to reaching on yield.
Daniel Neville: We are now fully focused on lending to cannabis. We remain confident in our ability to continue to deliver strong financial performance and generate value for our shareholders. We are well positioned to capitalize on the growing opportunities in the industry and believe the capital supply and demand imbalance will allow us to deliver attractive risk adjusted returns. With that, I'll turn it over to Brandon to discuss our financial results in more detail.
Speaker Change: With the spinoff of our commercial real estate business, we are now fully focused on lending to the cannabis industry.
Speaker Change: We remain confident in our ability to continue to deliver strong financial performance and generate value for our shareholders.
Speaker Change: We are well positioned to capitalize on the growing opportunities in the industry and believe the capital supply-demand imbalance will allow us to deliver attractive risk-adjusted returns.
Brandon Hetzel: With that, I'll turn it over to Brandon to discuss our financial results in more detail. Thank you, Dan. As a reminder, all Q2 figures discussed are a pre-spin. For the quarter ended June 30, 2024, we generated net interest income of 18.4 million in distributive earnings of 11.4 million, or 56 cents per basic weighted average common share, and had a gap net income of 16.4 million, or 80 cents per basic weighted average common share. As previously mentioned, we believe providing distributive earnings is helpful to shareholders and assessing the overall performance of AFC's business. Distributive earnings represents a net income computed in accordance with GAAP, including non-cash items such as stock compensation expense, any unrealized gains or losses, provision for current expected credit losses, also known as CECL, taxable re-substitular income or loss net of dividends, and other non-cash items recorded in net income or loss for the period.
Speaker Change: With that, I'll turn it over to Brandon to discuss our financial results in more detail.
Brandon Hetzel: As a reminder, all Q2 figures discussed are pre-spun. For the quarter ended June 30, 2024, we generated net interest income of $18.4 million and distributable earnings of $11.4 million, or $0.56 per basic weighted average common share, and had a gap net income of $16.4 million, or $0.80 per basic weighted average common share. As previously mentioned, we believe providing distributable earnings is helpful to shareholders in assessing the overall performance of AFC's business.
Brandon Hetzel: Thank you, Dan. As a reminder, all Q2 figures discussed are pre-spin.
Brandon Hetzel: For the quarter ended June 30, 2024, we generated net interest income of $18.4 million and distributable earnings of $11.4 million, or $0.56 per basic weighted average common share.
Speaker Change: and had a gap net income of $16.4 million or $0.80 per basic weighted average common share.
Speaker Change: As previously mentioned, we believe providing distributable earnings is helpful to shareholders in assessing the overall performance of AFC's business.
Brandon Hetzel: Distributable earnings represents 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 re-subsidiary income or loss net of dividends, and other non-cash items recorded in net income or loss for the period.
Speaker Change: Distributable earnings represents a net income computed in accordance with GAAP excluding non-cash items such as stock compensation expense.
Speaker Change: Any unrealized gains or losses, provision for current expected credit losses, also known as CECL, taxable re-subsidiary income or loss net of dividends, and other non-cash items recorded in net income or loss for the period.
Brandon Hetzel: We ended the second quarter of 2024 with $335.4 million of principal outstanding spread across 14 loans. As of August 1, 2024, our portfolio consisted of 287.1 million of principal outstanding across 12 loans, following the completion of the spinoff of our CRE portfolio. The weighted average portfolio yield to maturity, which is measured for each loan over the life of such loan, was approximately 19% as of June 30, 2024, and August 1, 2024. As of June 30, 2024, we had total assets of $458 million, including cash and cash equivalents of $170.3 million, with the majority of our cash currently earning interest of approximately 4.5% to 5.3%.
Brandon Hetzel: We ended the second quarter of 2024 with $335.4 million of principal outstanding spread across 14 loans. As of August 1st, 2024, our portfolio consisted of $287.1 million of principal outstanding across 12 loans following the completion of the spinoff of our CRE portfolio. The weighted average portfolio yield to maturity, which is measured for each loan over the life of such loan, was approximately 19% as of June 30th, 2024 and August 1st,
Speaker Change: The weighted average portfolio yield to maturity, which is measured for each loan over the life of such loan, was approximately 19% as of June 30th, 2024 and August 1st, 2024.
Brandon Hetzel: As of June 30, 2024, we had total assets of $458 million, including cash and cash equivalents of $170.3 million, with the majority of our cash currently earning interest of approximately 4.5% to 5.3%. We had $35 million drawn on our line of credit, which was subsequently repaid in full on July 1, 2024. Our line of credit provides us with up to $60 million in available funds that can be drawn as needed. Both the credit line and the unsecured bonds will remain with AFC following this bid-off.
Speaker Change: As of June 30, 2024, we had total assets of $458 million, including cash and cash equivalents of $170.3 million, with the majority of our cash currently earning interest of approximately 4.5% to 5.3%.
Brandon Hetzel: We had $35 million drawn on our line of credit, which was subsequently repaid in full on July 1, 2024. Our line of credit provides us with up to $60 million in available funds that can be drawn as needed. Both the credit line and the unsecured bonds remain at AFC following the spinoff. As of June 30, 2024, the Cecil reserve was $25.2 million, or approximately 9.1% of our loans at carrying value, which decreased $6.2 million from the March 31, 2024 reserve of $31.4 million. During the second quarter, we also had an increase in our unrealized losses on loans at fair value of $1.4 million, increasing the current total unrealized loss included in our balance sheet to $15 million.
Speaker Change: We had $35 million drawn on our line of credit, which was subsequently repaid in full on July 1, 2024.
Brandon Hetzel: As of June 30, 2024, the CECL reserve was $25.2 million, or approximately 9.1% of our loans at carrying value, which decreased $6.2 million from the March 31, 2024 reserve of $31.4 million. During the second quarter, we also had an increase in our unrealized losses on loans at fair value of $1.4 million, increasing the current total unrealized loss included in our balance sheet to $15 million.
Speaker Change: As of June 30, 2024, the CECL reserve was $25.2 million, or approximately 9.1 percent of our loans at carrying value, which decreased $6.2 million from the March 31, 2024 reserve of $31.4 million.
Speaker Change: During the second quarter, we also had an increase in our unrealized losses on loans at fair value of $1.4 million, increasing the current total unrealized loss included in our balance sheet to $15 million.
Brandon Hetzel: As of June 30, 2024, our total shareholder equity was $314.3 million, and our book value for shares was $15.21. After the quarter ended, we completed the spinoff of our CRE portfolio, which included the distribution of approximately 115 million of loans and cash, or approximately $5.56 of both value per share. On July 15, 2024, AFC paid a dividend of 48 cents per common share for the second quarter to share the shareholder's record as of June 24, 2022.
Brandon Hetzel: As of June 30, 2024, our total shareholder equity was $314.3 million, and our book value per share was $15.21. After the quarter ended, we completed the spinoff of our CRE portfolio, which included the distribution of approximately $115 million of loans and cash, or approximately $5.56 of both value per share. On July 15, 2024, AFC paid a dividend of $0.48 per common share for the second quarter to shareholders of record as of June 24, 2024.
Speaker Change: As of June 30, 2024, our total shareholder equity was $314.3 million and our book value per share was $15.21.
Speaker Change: After the quarter ended, we completed the spinoff of our CRE portfolio, which included the distribution of approximately $115 million of loans and cash, or approximately $5.56 of both value per share.
Speaker Change: On July 15, 2024, AFC paid a dividend of $0.48 per common share for the second quarter to shareholders of record as of June 24, 2024. Additionally, we paid a special dividend of $0.15 per common share on July 15, 2024, to shareholders of record as of July 8, 2024.
Brandon Hetzel: 24. Additionally, we paid a special dividend of $0.15 per common share on July 15th, 2024, to shareholders of record as of July 8th, 2024. As a reminder, on an annual basis, our dividend policy is to pay between 85% and 100% of distributed earnings over the year. With regard to the effect of the spin-off on the cost basis of AFC shares, we will post a form on our website discussing this treatment in the near future. However, the final determination cannot be finalized until the end of the year, and will be reflected on your 1099 DIVs at the end after the year end.
Brandon Hetzel: Additionally, we paid a special dividend of 15 cents per common share on July 15, 2024 to shareholders, a record as of July 8, 2024. As a reminder, on an annual basis, our dividend policy is to pay between 85% and 100% of distributable earnings over the year. With regard to the effect of the spinoff on the cost basis of AFC shares, we will post a form on our website discussing this treatment in the near future.
Speaker Change: As a reminder, on an annual basis, our dividend policy is to pay between 85% and 100% of distributable earnings over the year.
Speaker Change: With regards to the effect of the spinoff on the cost basis of AFC shares, we will post a form on our website discussing this treatment in the near future. However, the final determination cannot be finalized until the end of the year and will be reflected on your 1099-DIB sent after the year end.
Brandon Hetzel: However, the final determination cannot be finalized until the end of the year and will be reflected on your 1099-DIB sent after the year ends. With that, I will now turn it back over to the operator to start the Q&A.
Operator: With that, I will now turn it back over to the operator to start the Q&A. Thank you. 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.
Operator: Thank you. To ask a question, please press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Pablo Zuanic with Zuanic & Associates. Your line is now open.
Speaker Change: Thank you. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.
Pablo Zuanic: Please stand from the line of Pablo Zonich with Zonich and Soncius. Your line is now open.
Speaker Change: Our first question comes from the line of Pablo Zwanek with Zwanek & Associates. Your line is now open.
Pablo Zuanic: Good morning, everyone. Maybe the first question for Dan, if you can just, I know this is an earnings call, but if you can just give us more background and color in terms of, you know, what you have accomplished in the company since you joined, and what you have focused on, that would be helpful to start with that. Thanks.
Pablo Zuanic: Good morning, everyone.
Daniel Neville: Maybe the first question was done if you can just, I know it's an earnings call, but if you can just give us more background and color in terms of what you have accomplished in the companies you joined, what you have focused on, that would be helpful to start with that. Thank you. Yeah, absolutely, Pablo. Thanks for the question. So the three priorities that I had when I came in were first to manage underperforming credits. I think, as you've seen from the activity this quarter, as well as activity in prior quarters, we made a lot of progress on that front, getting capital back and being able to recycle that capital into new operators in the space with attractive credit profiles and attractive yields.
Pablo Zwanek: Good morning, everyone.
Pablo Zwanek: Maybe the first question for Dan, I know this is an earnings call, but if you can just give us more background and color in terms of what you have accomplished in the company since you joined, what you have focused on, that would be helpful to start with that. Thank you.
Daniel Neville: Yeah, absolutely, Pablo. Thanks for the question. So the three priorities that I had when I came in were first to manage underperforming loans. I think, as you've seen from the activity this quarter, as well as activity in prior quarters, we made a lot of progress on that front, getting capital back and being able to recycle that capital into new operators in the space with attractive credit profiles and attractive views. So over the last nine months, there has been a lot of work, and a lot of that work was ongoing prior to my joining. But we've made very significant progress. The job's not finished on that front, There's still a little bit more work to do.
Dan: Yeah, absolutely, Pablo. Thanks for the question.
Dan: So, the three priorities that I had when I came in were, first, to manage underperforming credits. I think, as you've seen from the activity this quarter, as well as activity in prior quarters, we made a lot of progress on that front.
Dan: getting capital back and being able to recycle that capital into new operators in the space with attractive credit profiles and attractive yields.
Daniel Neville: So, over the last nine months, that has been a lot of work, and a lot of that work was ongoing prior to myself joining, but we made very significant progress. The job's not finished on that front. There's still a little bit more work to do, but I think overall we're very pleased with the progress that we made. Secondly was focused on origination.
Dan: So, over the last nine months, that has, you know, been a lot of work, and a lot of that work was ongoing prior to myself joining, but we've made very significant progress.
Daniel Neville: But I think overall, we're very pleased with the progress that we've made. Secondly, AFC had been more focused on commercial real estate for about the prior 18 to 24 months of me joining and hadn't been as active in the cannabis space given some of the vintages that were coming out and the performance in the market that we were seeing. We're now back in the market and have $57 million in origination today.
Dan: The job's not finished on that front. There's still a little bit more work to do, but I think overall we're very pleased with the progress that we've made.
Daniel Neville: AFC had been more focused on commercial real estate for about the prior 18 to 24 months of me joining and hadn't been as active in the cannabis phase, given some of the ventages that were coming out and the performance in the market that we were seeing. We're now back in the market and have $57 million of origination today. We're in active dialogues with, I think, a great vintage of quality operators that are sitting in our pipeline, and very happy to be back on the offensive and deploying existing capital as well as some of the capital that we've got back from some of the portfolio management efforts.
Dan: Secondly, was focused on origination. AFC had been...
Dan: more focused on commercial real estate for about
Dan: the prior 18 to 24 months of me joining and hadn't been as active in the cannabis space given
Dan: some of the vintages that were coming out and the performance in the market that we were seeing. We're now back in the market and have 57 million dollars of origination to date.
Daniel Neville: We're in active dialogues with, I think, a great vintage of quality operators that are sitting in our pipeline and very happy to be back on the offensive and deploying existing capital as well as some of the capital that we've got back from some of the portfolio management efforts. And then, finally, we're just being very active on the underwriting side of things. I think the existing team, Len and Robyn, as well as everyone else over on the AFC side of things, has a wealth of experience on the direct lending, structuring, and credit side of things and provides a very helpful top-down lens on the underwrite.
Speaker Change: We're in active dialogues with, I think, a great mintage of quality operators that are sitting in our pipeline and very happy to be back on the offensive and deploying
Speaker Change: existing capital as well as some of the capital that we've got back from some of the portfolio management efforts.
Daniel Neville: And then finally is just being very active on the underwriting side of things. I think the existing team when in Robin as well as everyone else over at the AFC side of things has a wealth of experience on the direct lending, structuring and credit side of things and provides a very helpful talk down lens on the underwrite and given my background on the operations side of things during my time at a send that allows me to come in and do the bottoms-up evaluation, grow facilities, retail sites, just adding a little bit more context to the underwrite and looking at each operation on a deniable basis.
Speaker Change: And then finally, is just being very active on the underwriting side of things. I think the existing team, Len and Robyn,
Speaker Change: as well as everyone else over at the AFC side of things has a wealth of experience on the direct lending, structuring,
Speaker Change: and Credit side of things and provides a very helpful top-down lens on the underwrite.
Daniel Neville: And given my background on the operations side of things during my time at Ascend, that allows me to come in and do the bottoms-up evaluation of growth facilities and retail sites, just adding a little bit more context to the underwrite and looking at each operation on a de novo basis. And that... something that, you know, I have a decent amount of experience or a wealth of experience from my five years at Ascend and the scars that I have on my back, working to help build that business. And it's proving very useful as we're looking at new credits in the portfolio.
Speaker Change: And given my background on the operations side of things during my time at Ascend, that allows me to come in and do the bottoms-up evaluation, grow facilities, retail sites,
Speaker Change: Just adding a little bit more context to the underwrite and looking at each operation on a de novo basis.
Daniel Neville: And that something that, you know, I have a decent amount of experience or wealth of experience for my five years at a send and the scars that I have on my back working to help build that business, and it's proving very useful as we're looking at new credits in the portfolio. Thank you.
Speaker Change: something that, you know, I have a decent amount of experience or a wealth of experience from my five years at Ascend and the scars that I have on my back, working to help build that business, and is proving very useful as we're looking at new credits in the portfolio.
Pablo Zuanic: Thank you. That's a great call.
Pablo Zuanic: That's very color.
Daniel Neville: Logan, just one last question. Obviously, I hear you in terms of the demand supply imbalance, right? Which is a good backdrop for the industry and for companies like yourself. But any changes that you're seeing on the supply side, right? It seems that, you know, maybe it's more regional banks, whether there's more private debt capital out there, whether, you know, when these companies are refinancing, we've seen four or five recently. There seems to be more options, or that's not the case necessarily. Thank you. Yeah, I think on the refinancing side of things, it's primarily the same players.
Daniel Neville: Look, and just one last question. Obviously, I hear you in terms of the demand-supply imbalance, right, which is a good backdrop for the industry and for companies like yourself. But any changes that you're seeing on the supply side, right, it seems that, you know, maybe it's more regional banks, whether there's more private debt capital out there, whether, you know, when these companies are refinancing, we've seen four or five recently, there seems to be more options, or that's not the case necessarily.
Speaker Change: Thank you, that's a great call. And just one last question. Obviously, I hear you in terms of the demand-supply imbalance, right, which is a good backdrop for the industry and for companies like yourself.
Speaker Change: But, any changes that you're seeing on the supply side, right, it seems that, you know, maybe it's more regional banks, whether there's more private debt capital out there, whether, you know, when these companies are refinancing, we've seen four or five recently, there seems to be more options, or that's not the case necessarily. Thank you.
Daniel Neville: Yeah, I think on the refinancing side of things, it's primarily the same players. I believe somewhere around three-quarters of the participants in one of the refinancings were existing players. The other recent tier two financing was a player that's been active in the space previously and someone that we see from time to time. So, we're seeing a lot of the same folks out there, to be quite honest.
Daniel Neville: I believe, you know, somewhere around three quarters of the participants in one of the refinancing were an existing player. The other recent tier two financing was a player that's been active in the space previously and someone that we see from time to time. So we're seeing a lot of the same folks out there, to be quite honest. I think on the regional banks side of things, we're not really running into those players much at all. One of those competitors is public. I think they've done $14 million into the space, a year to date this year.
Speaker Change: three-quarters of the participants in one of the refinancings were an existing player.
Speaker Change: Other recent tier two financing was a player that's been active in the space previously and someone that we see from time to time so
Daniel Neville: I think on the regional bank side of things, we're not really running into those players much at all. One of those competitors is public. I think they've put $14 million into the space year to date this year, and some of the other players there are pulling back. So it's just not something we're running into.
Speaker Change: We're seeing a lot of the same folks out there, to be quite honest, I think on the regional bank side of things.
Speaker Change: We're not really running into those players much at all. One of those competitors is public. I think they've done...
Daniel Neville: And some of the other players there are pulling back. So it's just not something we're running into. I think our borrower's value, you know, the flexible dynamic solutions that we can provide. We're very much a bespoke credit underwriter and capital provider. And each credit in each credit facility is a big unique, obviously, with the standard protections that we need to protect our investment. But, you know, I think we're seeing a lot of people value that flexibility that we can provide relative to what I think is more of a cookie-cutter approach on the regional banking side of things at lower LTPs.
Speaker Change: $14 million into the space year-to-date this year.
Speaker Change: and some of the other players there are pulling back.
Speaker Change: So it's just not something we're running into. I think our borrowers value, you know, the flexible dynamic solutions that we can provide. We're very much a bespoke credit, underwriter and capital provider.
Daniel Neville: I think our borrowers value the flexible, dynamic solutions that we can provide. We're very much a bespoke credit underwriter and capital provider. And each credit and each credit facility is a bit unique, obviously, with the standard protections that we need to protect our investment. But I think we're seeing a lot of people value that flexibility that we can provide relative to what I think is more of a cookie-cutter approach on the regional banking side of things, at lower LPD.
Speaker Change: And each credit and each credit facility is a bit unique, obviously, with the standard protections that we need to get to protect our investment.
Speaker Change: But, you know, I think we're seeing a lot of people value that flexibility that we can provide relative to what I think is more of a cookie-cutter approach on the regional banking side of things at lower LTBs.
Daniel Neville: Thank you.
Pablo Zuanic: Thank you. Look, I'm going to add one more. I don't know if you're in a position to give any color in terms of a pro forma book, what it looks like, and what the new dividend could be, range-wise.
Daniel Neville: I look at one more. I don't know if you can, if you're in a position to give any color or intensive performance book, what it looks like, what the new dividend could be range wise. I don't know any color; you can provide intensive performance numbers. Thanks. Sure. So, from a dividend standpoint, I think it's Dan said in his remarks, the board will declare their dividend on the normal cadence. If you think about, we've declared a 48 cent dividend for the last five quarters, I believe. And if you just think about this in office, we kept it about two thirds of assets, and we spun off one third of the assets.
Speaker Change: Thank you. Look, I'm going to add one more. I don't know if you're in a position to give any color in terms of a Proforma book, what it looks like, what the new dividend could be range-wise. I don't know. Any color you can provide in terms of Proforma numbers. Thank you.
Brandon Hetzel: I don't know. Any color you can provide in terms of a pro forma now? Hi, I'm Robin Nicholson. Hi, I'm Serena Knudsen. Thank you. Thank you.
Brandon Hetzel: So from a dividend standpoint, I think, as Dan said in his remarks, the board will declare their dividend on the normal cadence. If you think about it, we've declared a 48 cent dividend for the last five quarters. And if you just think about the spinoffs, we kept about two-thirds of assets, and we spun off one-third of the assets. In terms of the pro forma book, I think Brandon gave you on the Q2 number, right, what we spun off. So we spun off approximately $5.56 of book value per share. Thank you.
Speaker Change: So, from a dividend standpoint, I think as Dan said in his remarks, the board will declare their dividend on the normal cadence. If you think about, we've declared a 48 cent dividend for the last five quarters, I believe. And if you just think about the spinoffs.
Speaker Change: We kept about two-thirds of the assets and we spun off one-third of the assets.
Daniel Neville: In terms of pro form of book, I think branding gave you on the cute two numbers. Remember Ray, what we spun off. So we spun off approximately $5.56 of book value per share. Thank you.
Brandon Hetzel: In terms of pro forma book, I think Brandon gave you on the Q2 number, right, what we spun off. So we spun off approximately $5.56 of book value per share.
Operator: Thank you. As a reminder, to ask a question at this time, please press star 11 on your touchtone telephone. And I'm currently showing no further questions at this time. This does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: As a reminder, to ask a question at this time, please press star 11 or you touched on telephone.
Brandon Hetzel: Thank you.
Operator: And I'm currently showing no further questions at this time.
Operator: This does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Speaker Change: And I'm currently showing no further questions at this time. This does conclude today's conference call. Thank you for your participation and you may now disconnect.