AFC Gamma(AFCG) - 2025 Q2 - Quarterly Results

Second Quarter 2025 Financial Highlights and Strategic Announcements AFC reported a GAAP net loss of $(13.2) million and Distributable Earnings of $3.4 million, also announcing an expanded investment mandate and proposed BDC conversion Summary of Q2 2025 Results AFC reported a GAAP net loss of $(13.2) million and Distributable Earnings of $3.4 million for Q2 2025, with per-share figures of $(0.60) and $0.15 respectively Q2 2025 Key Financial Highlights | Metric | Amount | | :------------------------------------ | :------------- | | GAAP Net Loss | $(13.2) million | | GAAP Net Loss per Share | $(0.60) | | Distributable Earnings | $3.4 million | | Distributable Earnings per Share | $0.15 | Key Strategic Initiatives AFC plans to expand its investment mandate to include secured loans for ancillary cannabis and middle-market companies, and proposes converting to a BDC, pending shareholder approval - Expansion of Investment Mandate: Approved an amendment to include secured loans to ancillary cannabis businesses and public/private middle-market companies operating outside the cannabis industry[4] - Proposed Conversion to BDC: Intention to convert from a commercial mortgage REIT to a BDC, subject to shareholder approval, to pursue a broader array of investment opportunities[5] Management Commentary CEO Dan Neville emphasized resolving non-accrual credits and evaluating cannabis opportunities, highlighting the BDC conversion as a milestone to expand the investable universe beyond mortgage REIT limitations CEO Statement CEO Dan Neville highlighted the company's focus on resolving non-accrual credits and selectively evaluating opportunities with established cannabis operators, emphasizing that the proposed BDC conversion is a significant milestone, enabling the company to overcome limitations of its mortgage REIT structure in the capital-intensive cannabis industry and expand its investable universe to include non-real estate covered and ancillary businesses - Operational Focus: Focused on working through non-accrual credits and selectively evaluating opportunities with established operators of scale in attractive cannabis markets[3] - Rationale for BDC Conversion: The conversion would significantly expand the investable universe, allowing lending to ancillary cannabis businesses and non-real estate covered, vertically integrated operators, addressing limitations of the mortgage REIT structure in the capital-intensive cannabis industry[6] Company Profile Advanced Flower Capital Inc. (AFCG) is a commercial mortgage REIT specializing in senior secured mortgage loans and other debt securities for cannabis industry operators in legalized states About Advanced Flower Capital Advanced Flower Capital Inc. (AFCG) is a commercial mortgage real estate investment trust (REIT) primarily originating, structuring, underwriting, investing in, and managing senior secured mortgage loans and other debt securities, with a specialization in loans to cannabis industry operators in states that have legalized medical and/or adult-use cannabis - Business Model: Operates as a commercial mortgage REIT, primarily originating, structuring, underwriting, investing in, and managing senior secured mortgage loans and other debt securities[13] - Investment Focus: Specializes in loans to cannabis industry operators in legalized states, with loans typically secured by quality real estate assets, license value, and cash flows, ranging from $10 million to over $100 million[13] Detailed Second Quarter 2025 Financial Performance AFC reported a GAAP net loss of $(13.2) million and Distributable Earnings of $3.4 million for Q2 2025, with a detailed reconciliation of these figures and a declared common stock dividend GAAP Net Loss and Distributable Earnings AFC reported a GAAP net loss of $(13.2) million and Distributable Earnings of $3.4 million for Q2 2025, with per-share figures of $(0.60) and $0.15 respectively Q2 2025 Financial Results (Three Months Ended June 30, 2025) | Metric | Amount | | :------------------------------------ | :------------- | | Net (loss) income | $(13,164,651) | | Distributable earnings | $3,384,328 | | Basic weighted average shares outstanding | 22,114,341 | | Distributable earnings per basic weighted average share | $0.15 | Reconciliation of GAAP Net Income (Loss) to Distributable Earnings The reconciliation table details adjustments made to GAAP Net income (loss) to arrive at Distributable Earnings, showing a $14.1 million provision for current expected credit losses for Q2 2025 Reconciliation of GAAP Net Income (Loss) to Distributable Earnings (Three Months Ended June 30, 2025 vs. 2024) | Metric | June 30, 2025 | June 30, 2024 | | :------------------------------------------ | :------------- | :------------- | | Net (loss) income | $(13,164,651) | $16,446,121 | | Stock-based compensation expense | $484,502 | $369,343 | | Unrealized losses (gains) or other non-cash items | $1,055,970 | $1,420,001 | | Provision for (reversal of) current expected credit losses | $14,074,320 | $(6,190,240) | | TRS loss (income), net of dividends | $934,187 | $(624,235) | | Distributable earnings | $3,384,328 | $11,420,990 | | Basic weighted average shares outstanding | 22,114,341 | 20,400,004 | | Distributable earnings per basic weighted average share | $0.15 | $0.56 | Common Stock Dividend On July 15, 2025, Advanced Flower Capital paid a regular cash dividend of $0.15 per common share for the second quarter of 2025 to shareholders of record as of June 30, 2025 Q2 2025 Common Stock Dividend | Metric | Value | | :-------------------- | :---- | | Dividend per share | $0.15 | | Payment Date | July 15, 2025 | | Record Date | June 30, 2025 | Strategic Business Developments AFC is expanding its investment mandate to include secured loans to ancillary cannabis and middle-market companies, alongside a proposed conversion to a BDC to broaden investment opportunities Expansion of Investment Mandate AFC's Board approved expanding its investment mandate to include secured loans for ancillary cannabis businesses and public/private middle-market companies outside the cannabis industry, adhering to REIT obligations - New Investment Areas: Expanded mandate to include secured loans to ancillary cannabis businesses and public/private middle-market companies operating outside the cannabis industry[4] Proposed Conversion to Business Development Company (BDC) AFC announced its intention to convert from a commercial mortgage REIT to a BDC, pending shareholder approval, to significantly expand the investable universe, allowing lending to ancillary cannabis businesses and non-real estate covered operators - Conversion Rationale: The current mortgage REIT structure limits lending opportunities in the capital-intensive cannabis industry due to many operators not owning real estate[6] - Expanded Investable Universe: Conversion to a BDC would allow lending to ancillary cannabis businesses with high growth potential and non-real estate covered, vertically integrated operators, as well as direct lending opportunities in other private and public middle-market companies[6][7] - Approval Requirement: The proposed conversion is subject to shareholder approval of a new investment advisory agreement with its Manager that complies with the Investment Company Act of 1940[8] Non-GAAP Financial Measures Distributable Earnings is a non-GAAP financial measure used by AFC to evaluate performance by excluding certain non-cash and GAAP adjustments not indicative of current loan activity, serving as a factor in dividend authorization Definition and Rationale for Distributable Earnings Distributable Earnings is a non-GAAP financial measure used by AFC to evaluate performance by excluding certain non-cash and GAAP adjustments not indicative of current loan activity, defined as GAAP net income (loss) adjusted for specific items, and serves as a factor in dividend authorization - Definition: Distributable Earnings is GAAP net income (loss) excluding stock-based compensation, depreciation/amortization, unrealized gains/losses, provision for current expected credit losses, TRS (income) loss, and certain one-time non-cash charges[16] - Purpose: Used to evaluate performance by excluding effects of certain transactions and GAAP adjustments not necessarily indicative of current loan activity and operations, and is a factor considered by the Board of Directors in authorizing dividends[14][17] - Limitations: It is a non-GAAP measure and should not be considered a substitute for GAAP net income; methodology may differ from other REITs, impacting comparability[18] Investor Information Advanced Flower Capital provides investors with access to its Q2 2025 earnings presentation and Form 10-Q filing, and will host a conference call on August 14, 2025, to discuss quarterly financial results Investor Resources and Conference Call Advanced Flower Capital provides investors with access to its 'Second Quarter 2025 Earnings Presentation' and its Form 10-Q filing via its website, and will host a conference call on August 14, 2025, at 10:00 am ET to discuss quarterly financial results, with options for live audio webcast and telephone participation - Available Resources: Q2 2025 Earnings Presentation and Quarterly Report on Form 10-Q are available on advancedflowercapital.com under the Investor Relations section[10][11] - Conference Call: Scheduled for August 14, 2025, at 10:00 am ET, with live audio webcast and telephone registration available; the complete webcast will be archived for 90 days[12] Forward-Looking Statements This section contains a standard disclaimer regarding forward-looking statements, indicating they reflect current views and projections but are subject to inherent uncertainties and risks, with no obligation to publicly update or revise them unless required by law Disclaimer Regarding Forward-Looking Statements This section contains a standard disclaimer regarding forward-looking statements, indicating they reflect current views and projections but are subject to inherent uncertainties and risks, advising that actual results may differ materially due to factors such as the Manager's ability to locate loan opportunities, market demand, and credit losses, and disclaiming any obligation to publicly update or revise these statements unless required by law - Nature of Statements: Reflects current views and projections regarding future events and financial performance, identified by words such as 'believes,' 'expects,' 'will,' 'intends,' etc[20] - Risk Factors: Subject to inherent uncertainties, including the Manager's ability to locate suitable loan opportunities, demand for cannabis cultivation and processing facilities, and management's current estimate of expected credit losses, which could cause actual results to differ materially[20] - No Obligation to Update: The company does not undertake any obligation to publicly update or revise any forward-looking statements, except as required by law[20] Contact Information Contact details for investor relations and media inquiries are provided for Advanced Flower Capital Inc Investor and Media Contacts Contact details for investor relations and media inquiries are provided for Advanced Flower Capital Inc - Investor Relations Contact: Robyn Tannenbaum, (561) 510-2293, ir@advancedflowercapital.com[22] - Media Contact: Collected Strategies, Jim Golden / Jack Kelleher, AFCG-CS@collectedstrategies.com[22]