Advanced Flower Capital Inc.

Good day, and thank you for standing by. Welcome to the AFC Gamma second quarter 2022 earnings call. At this time, all participants are in the listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask a question during the session, please press star 1 1 on your telephone. You will then hear an automated message advising you that your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Gabriel Katz, Chief Legal Officer. Please go ahead.

Good morning, and thank you all for joining AFC Gamma's earnings call for the second 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 July 19, 2022 press release and is posted on the investor relations section of AFC Gamma's website at afcgamma.com, along with our second quarter earnings release and investor presentation. Today's call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, future market growth and developments, anticipated 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 periodic filings with the SEC for certain significant factors that could cause actual results to differ materially from these forward-looking statements and projections. During this call, we will refer to distributable earnings, which is a non-GAAP financial measure. Reconciliations of Net Income, the Most Comparable Gap 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 and overview of our second quarter 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 Tannenbaum.

Thank you, Gabriel. Good morning and welcome to AFC Gamma's earnings call for the second quarter of 2022. I would like to thank our analysts and investors for joining us today to discuss our results. Before turning to our second quarter results, I'd like to touch upon the broader cannabis markets. The sector has been under pressure due to the uncertainty of regulatory change, pricing compression, especially the unlimited license dates, and long lead times to raise equity. As a result of the difficult capital markets environment, many cannabis operators are focused on operations that are currently built and generating earnings versus additional capital expenditures in new states. Additionally, the cannabis M&A boom that we saw occur last year has slowed down, in part due to the difficult capital markets environment. This has caused many operators to utilize their limited resources to digest and integrate previously made acquisitions into their existing businesses. Although operators still need capital to finance their growth, the velocity of that demand for capital has slowed over the course of this year while rates have increased. This has enabled AFC Gamma to maintain its high level of selectivity while maintaining our interest margins. Turning to interest rates, there's been a substantial rise in interest rates in the broader market as well as the cannabis market. We have noticed that the existing debt of leading multi-state operators is now trading at approximately 350 basis points wider from the yields that they were issued. These operators have multi-billion dollar market caps and are perceived to be the best credits in cannabis. At AFC Gamma, we also have adjusted pricing to reflect the increased cost of capital in the industry. Now turning to our earnings. In the second quarter of 2022, AFC Gamma generated distributable earnings of 69 cents per weighted average share of common stock. As we have discussed in the past, one of the drivers of quarterly earnings is repayment, sales, and refinancing velocity within the portfolio. as we have seen evidence of this in every quarter since going public. 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 56-cent dividend per share for the June quarter, which was paid on July 15, 2022, to shareholders of record as of June 30, 2022. This was the fourth consecutive quarterly increase of the dividend paid to our public shareholders. Since going public, we have generated distributable earnings in excess of our dividend in each quarter and currently have rollover income of approximately $5.7 million, or $0.29 per share outstanding. During the second quarter, we closed on new commitments of $107.8 million and had gross fundings of $82.1 million. We continue to remain disciplined in our approach to lending and implement stringent underwriting criteria to make prudent investment decisions. Although we have not yet closed any new deals in the third quarter, AFC Gamma has additional capacity to complete transactions. Deals that we expected would have closed by now have not closed due to the borrower's longer lead time to raise equity in this environment. We continue to work with these potential borrowers to close transactions and we still expect to close potentially one to two deals this quarter. As a lender, our first priority is to protect shareholder capital. We actively manage our portfolio, having regular dialogue with many of our borrowers, and we are pleased with the coverage of our loans on an enterprise value basis. It is a challenging environment for many cannabis operators due to pricing pressures, as well as increased costs for expansion due to supply chain shortages and inflation, which in some cases have led us to tighten covenants or require infusions of equity capital, which our borrowers have been able to satisfy to date. We believe that our portfolio, which focuses on targeting 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 no loans are on non-accrual. As of August 1st, 2022, the weighted average yield of the portfolio was approximately 18%. Given the lack of capital in the market and the increase in benchmark interest rates, we believe the pricing is firming. As we stated last quarter, we believe the weighted average yield to maturity will generally remain consistent for the foreseeable future. Just to remind our investors, as we stated last quarter, we do not intend to sell stock below book value. Looking ahead, I am excited about our market positioning, portfolio composition, and our opportunity set. I'll now turn the call over to John.