AFC Gamma, Inc. (NASDAQ:AFCG) (“AFC Gamma” or the “Company”) today provided a business update for its operations through June 15, 2023, including declaring a dividend for the quarter ending June 30, 2023, announcing a share repurchase program, and sharing certain portfolio updates.
Dividend for Quarter Ending June 30, 2023
The Board of Directors of AFC Gamma declared a quarterly dividend for the quarter ending June 30, 2023 of $0.48 per outstanding share of common stock, payable on July 14, 2023 to the common stockholders of record on June 30, 2023. The $0.48 quarterly dividend represents an annual run rate of $1.92. Management anticipates that the June quarterly dividend represents a sustainable dividend level on the current portfolio, assuming no significant non-accruals and without any additional investments. The $0.48 dividend level takes into account recent repayments we have received and cash drag associated with the current liquidity on our balance sheet, including from those recent repayments. We remain focused on deploying capital into deals with strong risk adjusted returns both in cannabis and traditional real estate loans, but expect reduced earnings until the cash is deployed and leverage is drawn.
AFC Gamma’s stated policy is to pay dividends between 85% and 100% of ordinary income for each calendar year. If our annual dividend falls below the stated range due to increased earnings, we will consider paying a special dividend at the end of the year to stay within the stated range.
Share Repurchase Program
Since the beginning of 2023, certain executives of the Company have purchased approximately $2.9 million worth of AFC Gamma stock in the aggregate. Given the current volatility in AFC Gamma’s share price, the Board of Directors has approved a share repurchase program, authorizing the Company to repurchase up to $20 million of its outstanding common stock.
At management’s discretion, the shares may be acquired from time to time in the open market, through privately negotiated transactions or otherwise in compliance with Rule 10b-18 and Rule 10b5-1 under the Securities Exchange Act of 1934. The Board of Directors has also authorized the Company to establish a Rule 10b5-1 trading plans that will permit the Company to repurchase its outstanding shares at times when it might otherwise be prevented from doing so.
This share repurchase program does not obligate the Company to acquire any particular amount of its outstanding shares and the timing and exact amount of repurchases will depend on various factors, including the performance of the Company’s stock price, general market and other conditions, applicable legal requirements and other factors. This share repurchase program is authorized until December 31, 2025 and may be suspended, modified or discontinued at any time.
Portfolio Update
Our portfolio management team continues to navigate the challenging cannabis environment. Since our last earnings call, we have sold two-thirds of the Private Company I credit facility, which was a Category 4 loan under our CECL analysis as of March 31, 2023 and was placed in foreclosure in May 2023. We sold our portion of the credit facility at par plus accrued interest to a multi-state cannabis operator and have a put right on the remaining one-third immediately prior to the transfer of one of the borrower’s cannabis licenses. AFC Gamma also received (i) a paydown of approximately $5.9 million on its portion of the Private Company A credit facility from the borrower’s sale of its Maryland assets and (ii) a repayment of all principal, accrued interest and exit fees upon maturity of the credit facility to Sub. of Private Company H. Lastly, on our last earnings call we discussed Private Company G, which had capitalized a substantial amount of its interest over a limited period. This period has now ended, and we are pleased to report that we have so far received 60% of the borrower’s June interest payment in cash with a payment plan to receive the rest of the June interest payment in cash over the course of this month. Although the borrower is trending in a positive direction, we still view this loan as risky and continue to closely monitor it.
Deploying capital in traditional real estate is still proving challenging in this environment given the bid-ask spread between buyers and sellers, higher interest costs that have made certain construction projects uneconomical and the overhang of a potential recession, which has put absorption rates into question. Given the noticeable pullback by regional banks from the commercial real estate market, we are seeing quality deal flow, yet believe there is a longer time frame to deploy capital, which may lead to additional cash drag.
