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spk01: Good morning and welcome to AFCGamma'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. 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.
spk11: 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, Robin Tannenbaum, our President, and Brandon Hetzel, 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 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 in 2024 and beyond. These statements are subject to inherent uncertainties in predicting future results. Please refer to AFCGamma'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 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 and Dan will provide introductory remarks, an overview of our fourth quarter and full year performance, as well as some strategic commentary. Brandon 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.
spk10: Thank you. Good morning and welcome to 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 dividend. The Board of Directors declared a 48-cent dividend per share for the December quarter, which was in line with the previous two quarters. Since going public, we have generated distributable earnings that have met or exceeded our dividend 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 has declared a fourth consecutive 48-cent dividend, which will be paid on April 15th to shareholders as of record March 31st, 2024. 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 have 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 spinoff 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 sons 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. 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 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 from CRE lending. We are also seeing a large increase in CRE deal flow in the past few weeks.
spk09: With that, I will pass it to Dan to discuss our AFC cannabis portfolio. Thanks, Len. Good morning.
spk03: I'm excited to be speaking to you for my first earnings call as CEO of AFC. It has been a busy and productive four months since I joined AFC as CEO and dove 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 at 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 2,200 employees and over $500 million in revenue. Prior to that, I was a managing director at SLS Capital, a special situations hedge fund, 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, were successful, and are now entering or reentering the cannabis industry. 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 liabilities. 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 medical programs. 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 on six markets, flown over 40,000 miles, and visited and toured 11 cultivations and 28 dispensaries. 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. states such as Missouri, New Jersey, Ohio, and Pennsylvania. 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. 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 pay down was received during the quarter. As we have discussed during the last several quarters, we are working closely with 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 month of October and November. However, the borrower only made a partial payment for December. 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 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 2024, private company L entered into an agreement to sell their operations in Missouri. This sale will translate into a $20 million reduction in principal on private companies L loan 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 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. We currently have a signed cannabis term sheet and are in documentation phase for a borrower that we are excited to lend to in 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 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 IRRs. 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. Second, to continue to underrate 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.
spk02: Thank you, Dan. 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 31st, 2023, we generated net interest income of $16 million and distributable earnings of $10 million, or 49 cents per basic weighted average common share. and had a gap net loss of 9.2 million or 45 cents 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 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 GAAP net income of 21 million, or earnings of $1.02 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. 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. We ended the fourth quarter of 2023 with $388.3 million of principal outstanding spread across 12 borrowers. Subsequent to December 31st, 2023, ASC committed $56.4 million, of which $48.9 million was funded, across two commercial real estate mezzanine loans. and we continue to see attractive CRE 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, 2024. 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, 2024. Our line of credit provides us with up to $60 million in available funds that can be drawn as needed. Currently, the majority of our cash is earning interest of approximately 4.5 to 5.3%. As of December 31st, 2023, the CECL Reserve was $26.4 million, or approximately 8.7% of our loans at carrying value. which increased 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. We currently have four borrowers on non-accrual, which represents 25% of our portfolio. As of December 31, 2023, our total shareholder equity was $320.1 million and our book value per share was $15.64. On January 12, 2024, ASC paid a dividend of $0.48 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. For the first quarter of 2024, the board of directors declared a 48 cent dividend, which will be paid on April 15th, 2024 to shareholders of record as of March 31st, 2024. With that, I will now turn it back over to the operator to start the Q&A.
spk01: 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.
spk00: Please stand by while we compile the Q&A roster. Our first question comes from the line of Pablo Zwanek with Zwanek & Associates.
spk07: Congratulations on all the progress the company is making. Just regarding the comment I think you made in the prepared remarks about the regional banks pulling out of the industry, can you give more color or context on that? On the one hand, we saw Bank Needham getting more active in the space, some refinancing there. The details report talked about First Citizens Bank, 19th largest bank entering the space in terms of lending. I don't know if those are exceptions or more of a trend. If you can just give more color in terms of the competition you're seeing from the banking side. Thank you.
spk03: Dan Bausch Yeah. So, Pablo, thanks for the question. This is Dan. 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 public companies. Those companies often do not have the real estate coverage that we require for a REIT status. 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 this space. And the second thing I'd say is that this is a $30 billion industry that's you know, sitting within $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, North Carolina is a great example. That state is going to have 10 verticals, 13 million people. It's a very attractive market. And it probably implements a medical program sometime in the next year or two. Those 10 verticals come with eight stores apiece. 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. When we look at estate flipping and $360 million of 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.
spk07: Thank you. That's good, Color. And maybe as a follow-up, in terms of the, maybe for Leonard, Robin, but maybe just more context about the pivot that you've made, right? A year ago, the idea was that you were exiting and diversifying into commercial real estate. And then now, of course, you're obviously doubling down now on cannabis and higher than. What is it that you're seeing, right, that I guess made you change? On the one hand, we see more deflation, more licensing in some states, creating more competition, so tougher industry conditions. But, of course, on the other hand, no progress at the federal level. But on the other hand, of course, we're seeing more states going medical or going rec, right? But just remind us of that. 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.
spk10: I think the positives that happened was 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 of the quality of their earnings. I'm actually very excited about Georgia. I think Georgia is going to be a great state too. 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's left the presidential race and started to support rec 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 the cannabis 3.0. 2.0 is 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's done a phenomenal job, really, from an operating lens, taking a look at these, their 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. with that approach. So I'm excited about cannabis and I'm equally excited about real estate. Look, our shareholders, AFC, are going to own about one-third of their stock in Suns and Suns 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 build 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 Suns, and 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.
spk06: Thank you. That's very helpful. Thank you.
spk01: That concludes today's question and answer session. This concludes today's conference call. Thank you for participating. You may now disconnect. you Thank you. Thank you. Thank you. 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. 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.
spk11: 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, Robin Tannenbaum, our president, and Brandon Hetzel, 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 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 in 2024 and beyond. These statements are subject to inherent uncertainties in predicting future results. Please refer to AFCGamma'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 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 and Dan will provide introductory remarks, an overview of our fourth quarter and full year performance, as well as some strategic commentary. Brandon 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.
spk10: Thank you. Good morning and welcome to 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 dividend. The Board of Directors declared a 48-cent dividend per share for the December quarter, which was in line with the previous two quarters. Since going public, we have generated distributable earnings that have met or exceeded our dividend 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 has declared a fourth consecutive 48-cent dividend, which will be paid on April 15th to shareholders as of record March 31st, 2024. 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 have 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 sons 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. 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 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 from CRE lending. We are also seeing a large increase in CRE deal flow in the past few weeks.
spk09: With that, I will pass it to Dan to discuss our AFC cannabis portfolio. Thanks, Len. Good morning.
spk03: I'm excited to be speaking to you for my first earnings call as CEO of AFC. It has been a busy and productive four months since I joined AFC as CEO and dove 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 at 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 2,200 employees and over $500 million in revenue. Prior to that, I was a managing director at SLS Capital, a special situations hedge fund, 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, were successful, and are now entering or reentering the cannabis industry. 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 liabilities. 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 medical programs. 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 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 on six markets, flown over 40,000 miles, and visited and toured 11 cultivations and 28 dispensaries. 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. states such as Missouri, New Jersey, Ohio, and Pennsylvania. 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. 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 pay down was received during the quarter. As we have discussed during the last several quarters, we are working closely with 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 month of October and November. However, the borrower only made a partial payment for December. 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 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 2024, private company L entered into an agreement to sell their operations in Missouri. This sale will translate into a $20 million reduction in principal on private companies L loan offsets 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 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. We currently have a signed cannabis term sheet and are in documentation phase for a borrower that we are excited to lend to in 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 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 IRRs. 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. Second, to continue to underrate 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.
spk02: Thank you, Dan. 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 31st, 2023, we generated net interest income of 16 million and distributable earnings of 10 million or 49 cents per basic weighted average common share. and had a gap net loss of 9.2 million or 45 cents 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 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 GAAP net income of 21 million, or earnings of $1.02 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. 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 re-subsidiary income or loss, net of dividends, and other non-cash items recorded in net income or loss for the period. We ended the fourth quarter of 2023 with $388.3 million of principal outstanding spread across 12 borrowers. Subsequent to December 31st, 2023, ASC committed $56.4 million, of which $48.9 million was funded, across two commercial real estate mezzanine loans. and we continue to see attractive CRE 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, 2024. 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, 2024. Our line of credit provides us with up to $60 million in available funds that can be drawn as needed. Currently, the majority of our cash is earning interest of approximately 4.5 to 5.3%. As of December 31st, 2023, the CECL reserve was $26.4 million, or approximately 8.7% of our loans at carrying value. which increased $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. We currently have four borrowers on non-accrual, which represents 25% of our portfolio. As of December 31, 2023, our total shareholder equity was $320.1 million and our book value per share was $15.64. On January 12, 2024, ASC paid a dividend of $0.48 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. For the first quarter of 2024, the board of directors declared a 48 cent dividend, which will be paid on April 15th, 2024 to shareholders of record as of March 31st, 2024. With that, I will now turn it back over to the operator to start the Q&A.
spk01: 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.
spk00: Please stand by while we compile the Q&A roster. Our first question comes from the line of Pablo Zwanek with Zwanek and Associates.
spk07: ...all the progress the company's making. Just regarding the comment I think you made in the prepared remarks about the regional banks pulling out of the industry, can you give more color or context on that? On the one hand, we saw Bank Needham getting more active in the space, some refinancing there. Dale's report talked about First Citizens Bank, 19th largest bank entering the space in terms of lending. I don't know if those are exceptions or more of a trend. If you can just give more color in terms of the competition you're seeing from the banking side. Thank you.
spk03: Yeah. So, Pablo, thanks for the question. This is Dan. 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 public companies. Those companies often do not have the real estate coverage that we require for a REIT status. 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 this space. And the second thing I'd say is that this is a $30 billion industry that's you know, sitting within $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, North Carolina is a great example. That state is going to have 10 verticals, 13 million people. It's a very attractive market. And it probably implements a medical program sometime in the next year or two. Those 10 verticals come with eight stores apiece. 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. When we look at estate flipping and $360 million of 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.
spk07: Thank you. That's good, Colorado. Maybe as a follow-up, in terms of the, maybe for Leonard, Robin, but maybe just more context about the pivot that you've made, right? A year ago, the idea was that you were exiting and diversifying into commercial real estate. and then now, of course, you're obviously doubling down now on cannabis and higher than. What is it that you're seeing, right, that I guess made you change? On the one hand, we see more deflation, more licensing in some states, creating more competition, so tougher industry conditions, but of course, and no progress at the federal level. But on the other hand, of course, we're seeing more states going medical or going rec, right? But just remind us of the why the change and I guess why the more apparently more positive view about industry trends that made you a Refocus on cannabis again. Thank you.
spk10: I Think the the positives that happened was Ohio going rack Pennsylvania probably going rack and And and really a very good experience that we had in Missouri with with our borrowers and and and and that's really helped out a lot of the quality and of their earnings. I'm actually very excited about Georgia. I think Georgia is going to be a great state too. 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's left the presidential race and started to support rec 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 that Canada's three battle players have literally said this for six consecutive quarters. We're going to wait for the cannabis 3.0. 2.0 is 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's done a phenomenal job, really, from an operating lens, taking a look at these, their 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 with that approach. So I'm excited about cannabis, and I'm equally excited about real estate. Look, our shareholders, AFC, are going to own about one-third of their stock in Suns, and Suns 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 build 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 Suns, and 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.
spk06: Thank you. That's very helpful. Thank you.
spk01: That concludes today's question and answer session. This concludes today's conference call. Thank you for participating. You may now disconnect.
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