Good day and thank you for standing by. Welcome to the AFC Gamma Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Gabe Katz, Chief Legal Officer. Please go ahead.

Good morning. And thank you all for joining AFC Gamma’s earnings call for the fourth quarter and full year ended December 31, 2022. I’m joined this morning by Leonard Tannenbaum, our Chief Executive Officer; Jonathan Kalikow, our Head of Real Estate; Robyn Tannenbaum, our President; and Brett Kaufman, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our February 23, 2023, press release and is posted on the Investor Relations portion of AFC Gamma’s website at afcgamma.com, along with our fourth quarter and full year 2022 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 2023 and beyond. These statements are subject to inherent uncertainties in predicting future results and conditions and certain factors could cause actual results to differ materially from those projected in these forward-looking statements. Please refer to AFC Gama’s most recent periodic filings with the SEC for certain 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 GAAP 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 will provide introductory remarks and overview of our fourth quarter performance and strategic commentary. Brett 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 Chief Executive Officer, Leonard Tannenbaum.

Thank you, Gabe. Good morning. And welcome to AFC Gamma’s earnings call for the fourth quarter and full year ending December 31, 2022. I would like to thank our analysts and investors for joining us today to discuss our results. I am pleased to have continued to execute on our business plan during the fourth quarter of 2022. AMC Gamma generated distributable earnings of $0.62 per weighted average share of common stock. As a reminder, distributable earnings is the primary metric that the Board considers when declaring AFC Gamma’s quarterly dividend. The Board of Directors declared a $0.56 dividend per share for the December quarter, which is in line with our previous three quarters. Since going public, we have generated distributable earnings in excess of our dividend in each quarter and paid out $3.54 in dividends per share, including paying out $2.23 per share during the 2022 fiscal year. For the full year 2022, AFC Gamma paid out approximately 90% of distributable earnings in the form of dividends. For the first quarter of 2023, the Board of Directors has declared a fourth consecutive $0.56 dividend, which will be paid on April 14, 2023, to shareholders of record as of March 31, 2023. During 2022, the cannabis market faced pressure during a variety of factors, including the uncertainty of regulatory change, pricing compression, longer lead times to raise equity. During this time, AFC Gamma made the calculated decision to monitor the environment, support our existing borrowers and build liquidity to take advantage of future opportunities without relenting on our stringent due diligence criteria. As a result, we have not originated any new cannabis debt investments that met our risk-adjusted return thresholds over the past nine months. We believe that Cannabis 3.0 will emerge with well-capitalized and sophisticated opportunistic acquirers who will…

Thank you, Len. We are pleased to report strong results in the fourth quarter and fiscal 2022. Beginning with our quarterly results, for the fourth quarter ended December 31, 2022, we had GAAP net income of $2.9 million or earnings of $0.14 per basic weighted average common share. For the three months ended December 31, 2022, we generated net interest income of $19.7 million and distributable earnings of $12.6 million or $0.62 per basic weighted average common share. We ended the fourth quarter of 2022 with total assets of $519 million. On an annual basis, for the year ended December 31, 2022, we earned GAAP net income of $35.9 million or earnings of $1.80 per basic weighted average common share. In 2022, we generated net interest income of $74.7 million and distributable earnings of $49.9 million or $2.51 per basic weighted average common share. We ended the fourth quarter of 2022 with $401.2 million of principal outstanding spread across 12 borrowers. As of March 1, 2023, AFC Gamma’s portfolio consisted of $421.4 million of current commitments, with $389 million funded across 13 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, 2022, and March 1, 2023. As previously mentioned, we believe providing distributable earnings is helpful to stockholders in assessing the overall performance of AFC Gamma’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 and other non-cash items recorded in net income or loss for the period. As of December 31, 2022, the CECL reserve represents approximately 4.97% of…

Thank you. [Operator Instructions] Our first question comes from Gaurav Mehta from Hutton Group. Your line is open.

Good morning. Thanks for taking my question. I wanted to ask you on the CRE lending that you guys talked about. Can you maybe provide some color on what kind of real estate assets would you be targeting under non-cannabis real estate lending and how big do you expect that book to become?

So I think we have taken -- given our expertise -- taking a modest approach, we’re looking at all different asset types. We already do industrial construction in the cannabis area and have some experience in non-cannabis area as well. We’ve owned a variety of properties between all of our affiliates here and so I think we’re looking at the commercial real estate in general. I would think we’re targeting the multifamily construction. We’re obviously taking a look at some of the commercial real estate, realizing the state that it’s in. So you have to have very tight loan to values there, and of course, we have a lot of expertise in industrial. So that’s an industrial REIT easy part for us to transition to. So we’re looking at all of them, but we’re looking at them in very safe manners. I mean we’re not take -- we are not going to be aggressive here.

Okay.

And what percent do I think that’s going to end up at the end of the year. My current guess is the portfolio could be more balanced towards 50-50 by the end of this year -- this calendar year.

Okay. Do you expect capital sources that are available to you guys change as a result of investing in traditional CRE lending versus, I guess, purely cannabis lending?

Well, that’s the good news. The good news is we’re going to be able to -- I believe we’re going to be able to take a lot more leverage if we have non-cannabis assets. I think cannabis lenders are very limited. And in terms of those that want to lend to that industry and it’s much more broad as we move into first-lien and second-lien assets primarily in the non-cannabis. So we’ll be able to bifurcate that asset pool and achieve better sources of leverage.

Okay. And lastly, can you provide some color on what kind of yields do you expect to get on the non-cannabis lending?

We still have not changed our yield range that we’ve had for a while, which is somewhere between 12% and 20%. So that’s the good news. The good news is and you can see that our overall field actually held up. I never know what it is each quarter until it’s calculated at 21% again. So we’re very encouraged by the environment and the opportunities in the environment, and so far, we’ve really been able to maintain strong yields.

Okay. Thank you. That’s all I had.

Thank you. One moment for our next question. Our next question comes from Michael Elias from Cowen. Your line is open.

Great. Thanks for taking the questions. Just to double click on the prior question. Given your expertise in lending to the real estate space, I was just wondering if you could stack rank for us the commercial real estate subsectors based on what you’re seeing from a gross yield potential perspective. And then, secondly, this is more of a philosophical question for you guys. With your dividend yield around 14%, do you believe that you’re getting credit for the dividend, and to the extent you are, do you see an argument to be made for holding the dividend in your current levels of just retaining that capital into the uncertain macro environment? Thank you.

Second question first. Yes. I really don’t -- I think this is an appropriate level of dividend. I don’t think we’re going to -- we’re getting paid for at the same time, we want to make that distribution to shareholders that they deserve. And so I think paying that 85%, 90% area is appropriate and you can probably see us continue there, of course, there’s going be variance of earnings each quarter. But so far, we’ve been able to earn our dividend each quarter. Looking at the commercial real estate environment, the banks really pulled back four months to six months ago, which create -- to me creates this amazing opportunity. It does take -- surprising to me and it takes the same two months to five months to close a deal that it doesn’t cannabis. It just takes a long time. And so though we started developing the pipeline nine months ago, it’s now you have the number of deals that are finally getting towards the end of saying they close or not closed, but they get sort of towards the end of that two-month to five-month period where they can close. When we’re looking at it, it’s hard to force rank the way you want to force rank, because I’ve done this for 25 years and I’ve done this in direct lending for $5 billion of my previous firm. So what we do is, I have just a general philosophy as being, what I call, a capital structure investor, where we have significant equity below us and significant enterprise value below us. We did the same thing in cannabis, where we wanted to make sure there was enough cushion should the markets fall apart, which they did and we still feel covered. So -- but we needed -- and we needed that cushion. I think the real estate the same way. You can see different real estate investments that people try to minimize the amount of equity and maximize the amount of debt and I find this very risky. We don’t want to be taking over properties, we want relationships and we want to be an institutional lender of the space. So I really looking -- we’re looking for those situations where we have significant enterprise value and equity, lower loan-to-cost, lower loan-to-value. But we’re looking across sectors, because we have expertise across sectors.

Great. Thanks for the color. That’s all I had. Thanks.

Thank you. And there are no other questions in the queue. I’d like to turn the call back to Mr. Len Tannenbaum for closing remarks.

Thank you. Thank you everyone for listening. We look forward to reporting our first quarter not too distant future since this was our year end results.

Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.