Advanced Flower Capital Inc.

Welcome to the AFC Gamma First Quarter 2022 Earnings Call. My name is Vanessa, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press 0, then 1 on your touch-tone phone. I will now turn the call over to Gabriel Katz, Chief Legal Officer.

Good morning, and thank you all for joining AFC Gamma's earnings call for the first quarter of 2022. I'm joined this morning by Leonard Tannenbaum, our Chief Executive Officer, Jonathan Calico, our Head of Real Estate, Robin Tannenbaum, our Head of Originations and Investor Relations, and Brett Kaufman, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our May 10, 2022 press release and is posted in the Investor Relations section of AFC Gamma's website at afcgamma.com, along with our first quarter earnings release and investor presentation. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, future market growth, capital markets activity, portfolio yield, and financial performance and projections in 2022. These statements are subject to the inherent uncertainties in predicting future results and conditions, and certain factors could cause actual results to differ materially from those projected in these forward-looking statements. New risks and uncertainties arise over time, and it is not possible for the company to predict those events or how they may affect these statements. Therefore, you should not place undue reliance on these forward-looking statements. Please refer to AFC Gamma's most recent filings with the SEC for certain significant factors that could cause actual results to differ materially from these forward-looking statements and projections. During this call, we will refer to distributable earnings, which is a non-GAAP financial measure. Reconciliations of net income, the most comparable GAAP measure to distributable earnings, can be found in AFC Gamma's earnings release and investor presentation available on AFC Gamma's website. The format for today's call is as follows. Len will provide introductory remarks, an overview of our first quarter 2022 performance, and strategic commentary. John will discuss AFC Gamma's portfolio. Robin will discuss the origination pipeline. Brett will summarize our financial results, and we will then open the line for Q&A. With that, I will now turn the call over to our Chief Executive Officer, Leonard Taneva.

Thank you, Gabe, and good morning, and welcome to AFC Gamma's earnings call for the first quarter of 2022. I would like to thank our analysts and investors for joining us today to discuss our results. Before turning to our first quarter results, I would like to briefly discuss the macro environment for cannabis. With a broader backdrop of rising interest rates and geopolitical unrest combined with cannabis-specific factors, such as the uncertainty of regulatory change and pricing compression, cannabis equities have been under pressure. Despite constraints in the equity markets, Many cannabis operators have growth plans either to expand in existing states or enter new states, and these growth plans still need to be completed. As a result, many operators are seeking debt to finance their growth, which allows AFC Gamma to maintain its high level of selectivity while maintaining our interest margins. Now, turning to our earnings. In the first quarter of 2022, AFC Gamma generated distributable earnings of $0.62 per weighted average share of common stock. Distributable earnings is the primary metric that the Board considers when declaring AFC Gamma's quarterly dividend. As a reminder, the Board of Directors declared a $0.55 dividend per share in the March quarter, which was paid on April 15, 2022, to shareholders of record as of March 31, 2022. This was the third consecutive quarterly increase to the dividend that was paid to our public shareholders. Since going public, we have generated distributable earnings well in excess of our dividend each quarter and currently have rollover income of approximately $3.1 million or 16 cents per share. At this time, the board expects the current quarterly dividend level should be at least 55 cents per share over the course of 2022. That quarterly dividend would produce, if not increased, a $2.20 annual dividend per share, which represents an approximately 13% dividend yield relative to March 31st, 2022 book value. Of course, that number is higher dividend yield on current share price. During the first quarter, we closed on new commitments of $46.9 million and a gross funding of $51.5 million. Subsequent to quarter end, we have closed on new commitments of $107.3 million and had gross fundings of $79.9 million. We are pleased that we were able to support the continued growth of two of our existing borrowers as they expand their businesses. Our robust pipeline of potential borrowers includes many new and existing borrowers that are expanding into new markets or further penetrating existing markets, though we continue to be focused on the limited licensed states. I would like to discuss a deal that we recently completed to demonstrate how AFC Gamma has the ability to grow with its borrowers as they expand and that power that being an incumbent lender provides. On April 20th, AFC Gamma closed a loan of up to $82.5 million to Bloom Medicinals, a privately held multi-state cannabis operator with licenses in Missouri, New Jersey, and Ohio. Bloom intends to use the proceeds from the credit facility to repay existing debt, fund expansion initiatives, and acquire a level one cultivation license in Ohio. AFC Gamma made its first loan to Bloom, Ohio in December 2020, secured by five dispensaries and made its second loan to Bloom, Missouri in April 2021, secured by a cultivation facility and four dispensaries. When Bloom came to AFC with the opportunity to vertically integrate in Ohio and roll the assets into the holding company, We were able to upsize our commitment and assist them in executing their vision. Given our unique hold size and understanding of their business, we were able to act fast and provide them with the capital necessary to close on the licensed transaction. We're excited to continue supporting Bloom as they expand their footprint. As the CEO and largest shareholder of AFC Gamma, my first priority is to protect shareholder capital. We are actively managing our portfolio, having regular dialogue with many of our clients, and are pleased with the coverage of our loans on an enterprise value basis. Additionally, as I described earlier, it's a challenging environment for many cannabis operators due to the pricing pressures, as well as increased costs for expansion due to supply chain shortages and inflation. We believe that our portfolio, which focuses on targeting vertically integrated operators in limited licensed states, is set up to mitigate risk and generate strong risk-adjusted returns. All of our borrowers are current with their interest payments, and there are no loans on non-accrual. As of May 9, 2022, the weighted average yield of the portfolio was approximately 18%. Given the increase in benchmark interest rates and the increased demand for capital relative to supply in the industry, We believe that pricing is firming versus the slight decrease we saw in pricing over the last two quarters. Therefore, we believe the weighted average yield to maturity will generally remain consistent for the foreseeable future. As the Federal Reserve has increased rates, we have examined the impact of rising rates in our portfolio. Approximately one-third of the portfolio currently has a floating interest rate, and we are focused on increasing that percentage over time. In addition, we issued $100 million of unsecured fixed interest rate debt in the fourth quarter of 2021. Turning to capital markets, during the March quarter, we completed a follow-on equity offering in January of this year. This provided AMC Gamma with approximately $63 million of deployable capital. The stock offering was accretive to book value by 41 cents per share. Very important is this next statement. We do not intend to sell stock below book value. Subsequent to quarter end, we continue to blend down AFC's capitals, AFC Gamma's cost of capital by entering into a third party $60 million senior secured revolving credit facility from two FDIC insured banks at a very attractive rate of prime plus one half a percent We are pleased to begin our relationship with these banks, which have over $70 billion of assets in the aggregate. This credit facility can expand to up to $100 million in commitments and fully replaces the $75 million revolving credit facility previously provided by AFC Finance, an affiliate of AFC Gamma. Looking ahead, we remain excited but highly selective in supporting the rapidly growing cannabis industry. we continue to remain focused on developing the best cost of capital among the limited number of alternative lenders in the industry. I will now turn the call over to John.