Robyn Tannenbaum; President, Chief Investment Officer; Advanced Flower Capital Inc.
Daniel Neville; Chief Executive Officer; Advanced Flower Capital Inc.
Brandon Hetzel; Chief Financial Officer, Treasurer; Advanced Flower Capital Inc.
Aaron Grey; Analyst; Alliance Global Partners
Pablo Zuanic; Analyst; Zuanic and Associates
Robyn Tannenbaum
(audio in progress)
$10 million and $40 million.
Lastly, we have focused our portfolio management efforts on underperforming credits in order to preserve capital. We believe that as we begin to get repaid on some of these underperforming assets and reinvest that capital into performing credits, we may unlock future earnings potential. Dan will dive deeper into the portfolio shortly. But I am pleased that through our portfolio management efforts in 2024, we received $119 million of paydowns from five underperforming credits and redeployed that capital across nine new loans to-date.
With that, I'll turn it over to Dan who will discuss our fourth quarter performance, the cannabis industry, and provide an update on our portfolio.
Daniel Neville
Thanks, Robyn. Good morning, everyone. I'll begin with an overview of our results, followed by some commentary on the industry and an update on our portfolio.
For the fourth quarter of 2024, AFC generated distributable earnings of $0.29 per basic weighted average share of common stock. While we have made significant progress over the last year reducing our exposure to underperforming credits, there is still work to be done. And our earnings in the fourth quarter and through the start of this year were impacted by the underperformance of some of our legacy loans.
As a result, the Board of Directors has declared a first quarter dividend of $0.23 per share which will be paid on April 15, 2025, to shareholders of record on March 31, 2025. We are focused on paying a dividend that is sustainable based on the current performing asset base and believe that the $0.23 dividend should be in line or close to our first and second quarter distributable earnings.
Before turning to the existing portfolio, I would like to highlight a recent transaction that we closed. In mid-February, we committed and funded a $15 million senior secured credit facility to Story of Ohio. Story intends to use the proceeds of this loan to acquire and build out dispensaries in Ohio. Our first lien term loan is secured by all of Story's assets in Ohio, with its Georgia assets initially included as additional collateral. This transaction reflects our continued focus on supporting strong operators in attractive limited license dates and further diversifying our portfolio.
As Robyn described earlier, our active pipeline remains strong, with over $380 million in deals as of March 1, 2025. We are focused on sourcing and backing operators with a prior track record of success and selectively providing construction financing to operators with existing operations in other states. We see a growing supply/demand imbalance for debt capital across the sector, with rising demand outpacing an already limited supply. This demand is driven by refinancing activity, adult use in medical expansions, and increased M&A in the cannabis space.
Given the Republican sweep and stalled progress on federal reform, we don't see many new capital providers entering the market, providing AFC with an opportunity to continue lending to strong operators at attractive risk-adjusted returns.
Turning to our current portfolio management efforts. We have continued the liquidation process for Private Company A, which recently completed the sale of its Georgia assets for $15 million of net proceeds. We are awaiting approval from the receivership to direct distribution of these proceeds, which should go to pay down the loan. As the borrower monetizes additional assets and we receive paydowns from Private Company A, we expect to earn additional revenue redeploying that capital, as Private Company A is on non-accrual and any capital received currently goes to principal paydown.
Turning to subsidiary of Private Company G. On a positive note, since we entered the forbearance agreement in March 2024, the borrower has infused additional equity capital and put experienced operators in place of its Pennsylvania and New Jersey operations. Subsidiary of Private Company G is also known and operates as Justice Grown. However, we have recently uncovered and notified the company of additional defaults under the forbearance agreement and additional defaults under its credit facility. In response, the company sued the CRO of the New Jersey operations.
With respect to this loan, we are secured by the vertical assets in New Jersey which include an owned cultivation facility and three dispensaries, two of which are owned. In Pennsylvania, we are secured by three dispensaries and an owned cultivation facility, which is currently not operational. Additionally, we have a parent guarantee and a shareholder guarantee as an added protective measure. We intend to aggressively pursue all rights and remedies we have under the credit facility and the guarantees to protect and preserve our shareholders' capital.
In the complaint against the CRO, Justice Grown also accused AFC of attempting to take the keys. While we would not normally comment on baseless accusations, I feel the need to address this issue head on given the potential for it to cause significant harm to AFC's business.
Our business is simple. We lend money out seeking to earn an attractive risk-adjusted return, and we expect to be paid back. In the history of AFC, we have never sought to enforce a foreclosure outside of a payment event of default. When borrowers run into issues, which is not uncommon given the emerging nature of the cannabis industry, we always seek to work with them to find a solution that puts the borrower on more stable footing while also protecting our shareholders' capital.
We entered into the credit facility with Justice Grown in April 2021 and subsequently entered into multiple amendments and two forbearance agreements, each of which they material defaulted on. We are lenders and have no intention of taking the keys and indeed, are prohibited from doing so under our legal standing. Additionally, the multiple amendments and forbearance agreements show we bent over backwards to avoid auctioning the borrower's assets to the highest third-party through a foreclosure.
In short, these accusations are baseless, and our only focus is being a trusted lending partner to strong operators with a history of success in the cannabis industry.
While I am disappointed that Justice Grown is still not on more stable footing, we achieved a number of positive outcomes related to other loans on the portfolio management front in 2024. We saw $119 million of capital returns across five underperforming loans last year, including a $4 million exit of our loan to Private Company I, a $22 million paydown from Private Company L, a $5 million paydown from Private Company A, a $4 million net paydown from private Company B, and an $84 million exit of our loan to subsidiary of Public Company H. As a reminder, this loan to subsidiary of Public Company H went into payment default in May 2024, and we received a full paydown of the loan at par, including back interest and default interest, only a month later.
While past performance is not indicative of future results, we are no stranger to portfolio management and will act aggressively to protect our shareholders' capital. As of December 31, 2024, we had $2.24 per share in unrealized losses and CECL reserves. During 2024, positions we exited had CECL reserves and unrealized losses of $0.31 per share associated with them. By selling or being repaid on these positions at par, the $0.31 per share of reserves and unrealized losses were added back to book value.
We are laser focused on unlocking value from underperforming loans and are excited about the new lending opportunities that we are seeing.
Now, I'll turn it over to Brandon to discuss our financial results in more detail.
Brandon Hetzel
Thank you, Dan. For the quarter ended December 31, 2024, we generated net interest income of $7.6 million and distributable earnings of $6.3 million or $0.29 per basic weighted average common share and had a GAAP net loss of $1 million or $0.05 per basic weighted average common share.
For the fiscal year ended December 31, 2024, we generated net interest income of $45.7 million and distributable earnings of $34.9 million or $1.68 per basic weighted average common share, and had a GAAP net income of $16.8 million or $0.78 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 represents 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 2024 with $356.8 million of principal outstanding spread across 16 loans. As of March 1, 2025, our portfolio consisted of $368.8 million of principal outstanding across 17 loans. The weighted average portfolio yield to maturity, which is measured for each loan over the life of such loan, was approximately 18% as of December 31, 2024 and March 1, 2025.
As of December 31, 2024, we had total assets of $402.1 million, including cash and cash equivalents of $103.6 million which included $100 million drawn on our lines of credit which were both subsequently repaid in full on January 2, 2025. As of December 31, 2024, the CECL reserve was $30.6 million or approximately 10.4% of our loans at carrying value. And we had a total unrealized loss included on the balance sheet of $19.7 million for our loans held at fair value. As of December 31, 2024, our total shareholder equity was $201.4 million and our book value per share was $9.02.
With that, I will now turn it back over to the operator to start the Q&A.
Operator
(Operator Instructions)
Aaron Grey, AGP.
Aaron Grey
Good morning and thank you for the questions here. First question for me just on Justice Grown, Private Company G. Obviously, you guys had done a lot of work to restore that to accrual and had worked out some forbearance agreements. I imagine a lot of this is still new, but just how best to think about some of these next steps? It looks like you guys talked about the (inaudible) work, everything's kind of still on the table. Are you guys still looking to come to a potential new agreement? Or what are the potential next steps we should be thinking about in the timeline because obviously, this is one of the bigger borrowers in the portfolio today. So any incremental color though would be helpful. Thanks.
Daniel Neville
Thanks for the question, Aaron. Look, we're not going to negotiate in public here and so I think what we, the management team and the Board of Directors, have done is to set our dividend at a sustainable level based on the current performing assets within the portfolio, and we added some commentary to that effect based on where we stand today. And should we receive paydowns and redeploy that capital into productive assets in the future, it's pretty simple arithmetic, and you guys can do your own math on what the income statement would look like if we redeploy that capital into productive assets.
Aaron Grey
Okay. Great. Thanks for the color there. And then just commentary in terms of the pipeline, how should we think about the mix of opportunities that you see most appealing? You talked about refinancing CapEx as well as M&A in terms of potential new capital deployment for the year. So what are you seeing in terms of near term opportunities? And how much of that pipeline might be able to come to fruition for the year? Thanks.
Daniel Neville
We're seeing a lot of interesting opportunities kind of across those broad swaths. Some opportunities in new medical markets like Kentucky which we view as an attractive and limited-license state that obviously is going to require significant capital for build-out. Some of those opportunities are in recently adult-use flip states that are -- and the Story of Ohio alone that we did would be a great example of that, and there's certainly more capital as additional dispensaries and capacity is built to service the Ohio market.
Other opportunities are refinancing opportunities. We're seeing certainly some exits from the space from other funds that have operated in the space historically that are not raising new funds or redeploying capital. And that is creating a need for good borrowers with good assets that could use that capital.
Ad then on the flip side, we have seen not as much on the public side of things, but more on the private side, some significant M&A. And often times, consideration for any of those M&A transactions is typically a third debt, a third cash, a third stock. And we're happy to be a provider of M&A and expansion capital to folks that are good operators that are looking to take advantage of some of the distress in the space and scale up their portfolios. So it's a mix of all of the above.
On the redeployment side of things, I think at least for the time being, given some of the uncertainty related to the underperforming assets in the portfolio, a target for that is going to be partially dependent on how much capital we receive back over the course of the year. But I would say that we are seeing a robust pipeline of good operators with strong credits that fit our profile and we'll be able to deploy any of the capital that we receive back plus the capital that we have available under our current liquidity into good credits in the space this year.
Aaron Grey
Okay. Great. Thanks for the color there. I'll jump back into the queue.
Operator
Pablo Zuanic, Zuanic and Associates.
Pablo Zuanic
Thank you. Good morning, everyone. Maybe, Dan, just to follow up in terms of the outlook for the book for 2025. I think, last year, you had set a target of $100 million in new funding. I don't know if you're setting a new target. You talked about the $54 million in commitments so far in '25. How much has been drawn in the first quarter? If you can talk about that. I think you have about $35 million in maturities this year. Just trying to understand the year-end look of the book in terms of total. Thank you.
Daniel Neville
Sure. So with the deployment of our loan to Story of Ohio, we did get slightly into leverage at the start of this year. Obviously, we have availability under, some of the various credit facilities that we have to continue to deploy capital into the space. On a target, I think that we'll look to probably wait to give that target likely next quarter, given that some of the recent events are a little bit newer here. And so how much we redeploy this year is one, a function of obviously availability under liquidity; but two, a function of how much capital we get back and the timing of getting that capital back.
I would say that, last year, we set a target of $100 million. We deployed $125 million of capital. I think with the opportunities today, it's even better than it was six to nine months ago. And so we're seeing a good pipeline of borrowers that were able to move up the quality curve on the credit profiles, the quality of the operators, the states that they're exposed to while still earning -- still targeting IRRs that are within our historical norms and our targets.
Pablo Zuanic
Right. And just can you remind us of the liquidity? I mean, obviously, yo have your balance sheet, cash flow available. And then in terms of the credit lines, what's left? Just a reminder on that.
Brandon Hetzel
Sure. And you can see it in our investor presentation as well. So we currently have two revolving lines of credit that allow us to borrow up to $100 million. As of March 1, we had approximately $89 million available under those facilities.
Pablo Zuanic
All right. Understood. And then just going back to the dividend, I mean, obviously, it has to be a number that's sustainable. You had issued $0.33 after the spin. So should we have thought of that as more of an extraordinary one-time dividend? Or was it that things really changed between that announcement and the $0.23 that you're doing now? Is it all Justice Grown-related, I guess, what I'm asking. I suppose you already knew about Justice Grown when you announced the $0.33 last quarter. Thank you.
Daniel Neville
No. These issues are more recent, so it's -- The way the forbearance agreement was structured, there were excess cash flow sweeps associated with the cash flow generation of this business. And there's been significant developments as we've entered into the new year here. So there was nothing extraordinary about the $0.33. And we're looking to set -- given the uncertainty around this situation as well as some of the paydowns related to Private Company A, which are larger loans, we wanted to set the dividend at a level that is based on the performing book ex any of the underperforming legacy loans.
Pablo Zuanic
Understood. That's good color. Thank you. And look, I understand the need to exit those underperforming loans and replace them with stronger operators and better credits. And obviously, you're doing that with Story, for example, right, a very strong operator out there. But does that mean that you're being put in a position to offer maybe a more competitive rate than you have taken in the past; that maybe in this need to swap the quality of your portfolio, you're having to bid more aggressively only in rates than you would have had in the past?
Daniel Neville
I think it's situational based on the credit, right? There are some loans that we're entering that are very low leveraged, that amortize quickly, that have a great collateral package and great security. And for a loan like that, it's going to be priced at a little lower cost of capital than a regular way cannabis loan would be priced. And there are also loans that are a little bit more development assets, I would say, in states that we really like. We have exposure to a small construction loan in Georgia. It's one of six licenses in the entirety of Georgia. And you have to structure a loan like that with appropriate protections in terms of construction reserves, interest reserves, et cetera, to make sure you have adequate security and protection in the structuring of the loan. And a loan like that is going to earn a little bit higher rate than your average cannabis loan. So we're not just picking one number and going out with term sheets with that. This is bespoke credit investing, and each one of these companies, credits, and structures is its own unique snowflake.
Pablo Zuanic
Right. And one more, I realized that being Nasdaq listed, you cannot own (inaudible) assets, so that's something you have to keep in mind when there's receivers being appointed and those type of things. But how would you describe the demand for assets in New Jersey and Pennsylvania right now? On the one hand, Pennsylvania would go (inaudible), so there should be strong demand. But there seems to be a lot of distressed assets in that market. And in the case of New Jersey, it's supposed to be an exciting market, but a lot of competition with a lot of new stores, right? So how would you describe the environment in terms of demand for assets in those two states?
Daniel Neville
Unfortunately, Pablo, we're not going to be in a position to comment there. I think you all can make your own observations about those markets and the attractiveness of those markets. And I'd leave it at that.
Pablo Zuanic
Okay. And if I may, I want to add just one more last one. Regarding 280E, in my opinion, what a lot of the companies are doing makes a lot of sense, right? Most companies are filing as normal corporations and just accruing the tax liability as some certain tax benefits and will see what happens in four, six years' time, right? These are not debts with a maturity date and there's a lot of -- so this could take a while, right? So you could make the argument that these companies are going to be in much better financial shape, generating positive cash flow, because of the way they are dealing with 280E. I'm just thinking from your perspective, do you agree with that view that these companies, as a result of not paying 280E and are in better shape, although it would have a big tax liability piling up on their balance sheet, right? Thanks.
Daniel Neville
There's puts and takes. Obviously, not paying your taxes is a choice. I wish I had that choice. But the old saying, There are two certainties in life, death and taxes, I think still does apply. And some of these companies, I think, are not paying taxes because they can't afford to pay those taxes. I also think that not paying taxes also potentially presents some issues for companies because in certain states, you can only -- due to the regulatory regime and the regulatory overlay, you can only do equity transfers as opposed to asset sales. And so in an equity transfer scenario, the tax is attached to that individual asset and somebody eventually has to pay the tax man.
And so I think there's puts and takes. We don't really have a strong view one way or another. We would love for both the industry and for our borrowers to get 280E reform over the line. I think it's a crime that it's still out there and these companies are paying exorbitant rates. But unfortunately, I'm not sure that that's really a high priority item or a focus for the Republican administration.
Pablo Zuanic
All right. Thank you very much.
Operator
That concludes today's question-and-answer session. I'd like to turn the call back to Dan Neville for closing remarks.
Daniel Neville
Thank you so much for joining us today and for the questions.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.
