AFC Gamma(US:AFCG)2024-08-07 12:31Financial Performance - Net income allocable to common shareholders for the three months ended June 30, 2024, was approximately $16.4 million, or $0.80 per share, compared to $12.1 million, or $0.59 per share for the same period in 2023[186]. - Interest income increased by approximately $2.3 million, or 12.9%, for the three months ended June 30, 2024, compared to the same period in 2023[187]. - Distributable earnings for the three months ended June 30, 2024, were approximately $11.4 million, or $0.56 per share, compared to $9.9 million, or $0.49 per share for the same period in 2023[183]. - Cash dividends declared per share for the six months ended June 30, 2024 totaled $1.11, with an aggregate amount paid of approximately $22.9 million[173]. Spin-Off and Strategic Focus - The company completed a Spin-Off on July 9, 2024, transferring its CRE portfolio to SUNS and distributing shares to shareholders[154]. - Following the Spin-Off, the company plans to focus on first and second lien loans to cannabis operators, removing previous investment guidelines related to non-cannabis commercial real estate[156]. - The Spin-Off of Sunrise Realty Trust, Inc. occurred on July 9, 2024, with shareholders receiving one share of SUNS common stock for every three shares held[176]. Loan Portfolio and Financing - The total loan portfolio balance as of June 30, 2024, was approximately $335.4 million, with an average yield to maturity (YTM) of 19%[204]. - As of June 30, 2024, the portfolio included twelve loans held at carrying value with an outstanding principal of approximately $283.7 million, down from $314.4 million as of December 31, 2023[212]. - The aggregate originated commitment for loans held at carrying value was approximately $311.1 million as of June 30, 2024, compared to $333.1 million as of December 31, 2023[212]. - The company sold its loan with Private Company B at par plus accrued interest, with an outstanding principal of approximately $19.3 million, and received an exit fee of approximately $1.0 million[165]. - The company received an approximately $8.1 million prepayment from Private Company L's sale of certain collateral assets during the second quarter[159]. Credit and Interest Rate Risk - Interest rate risk is a significant concern, as rising rates could increase borrowing costs while yields on fixed-rate assets remain static, potentially reducing net interest margin[257]. - The company is subject to credit risk on commercial real estate loans and will manage this risk through deep credit fundamental analysis and non-recourse financing[263]. - Changes in market yields could significantly affect the fair value of loans, with a decrease of 50 basis points resulting in an unrealized gain (loss) of approximately $0.2 million[258]. - The company actively manages risk exposure related to interest rates, credit, and prepayment risks through a combination of portfolio monitoring and risk management tools[249]. Capital Structure and Liquidity - The company expects to raise additional equity and/or debt funds to increase liquidity in the near future due to the evolving cannabis industry and increased demand for capital[227]. - The company had $35.0 million of borrowings outstanding under its Revolving Credit Facility as of June 30, 2024, with an additional $25.0 million available for borrowing[228]. - The company incurred a one-time commitment fee expense of approximately $0.5 million upon entering into the Revolving Credit Agreement, amortized over the life of the facility[229]. - As of June 30, 2024, the company had approximately $170.3 million in unrestricted cash, an increase from $121.6 million as of December 31, 2023[223]. Management and Operational Expenses - Management fees increased by approximately $0.3 million, or 17.2%, for the six months ended June 30, 2024, driven by lower outside fees earned[192]. - General and administrative expenses decreased by approximately $(1.0) million, or (31.7)%, for the six months ended June 30, 2024, primarily due to the absence of severance expenses incurred in the prior year[194]. - Professional fees increased by approximately $1.1 million, or 134.5%, for the six months ended June 30, 2024, due to spin-off costs incurred during the period[197]. Compliance and Regulatory Matters - The company has qualified as a REIT and intends to maintain this status while continuing to satisfy asset, income, and distribution tests[150]. - The company is required to distribute at least 90% of its REIT taxable income to shareholders, with potential tax implications for undistributed income[246]. - As of June 30, 2024, the company was in compliance with all covenants contained in its Revolving Credit Agreement[230].