Good morning, and welcome to Advanced Flower Capital's Second Quarter 2024 Earnings Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this call is being recorded. I would now like to turn the call over to Gabriel Katz, Chief Legal Officer. Please go ahead.

Good morning, and thank you all for joining AFC's earnings call for the quarter ended June 30, 2024. I'm joined this morning by Daniel Neville, our Chief Executive Officer; Robyn Tannenbaum, our President; and Brandon Hetzel, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our July 15, 2024 press release and is posted on the Investor Relations portion of AFC's website at advancedflowercapital.com along with our second quarter 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, anticipated market developments, portfolio yield and financial performance in 2024 and beyond. These statements are subject to inherent uncertainties in predicting future results. Please refer to AFC's most recent periodic filings with the SEC for certain conditions and 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 to net income, the most comparable GAAP measure can be found in AFC's earnings release and investor presentation on AFC's website. The format for today's call is as follows. Robyn will start by discussing our spin-off, then Dan will provide an overview of our second quarter 2024 performance and an update on our portfolio, Brandon will then conclude with a summary of our financial results, and we will turn the – open the line for Q&A. With that, I will now turn the call over to our President, Robyn Tannenbaum.

Thanks, Gabe, and good morning to all our investors and analysts that have joined us today. We are excited to announce that following the successful spin-off of our commercial real estate portfolio on July 9, 2024, AFC has now fully transitioned to being a pure-play cannabis lender. This strategic move allows us to focus solely on the cannabis sector. We believe that this positions us to more effectively capitalize on the opportunities in the cannabis market by concentrating our lending efforts on one industry. Additionally, this should allow us to target specific investor bases more effectively. Today, we are reporting on our second quarter results which were pre-spin and include results from both the cannabis and commercial real estate lending portfolio. I'll now turn it over to Dan to discuss our second quarter results and some milestones we've achieved.

Thanks, Robyn, and good morning. This quarter was marked by strong performance and several key achievements in our portfolio management and origination efforts. I'll start my remarks with a brief overview of results and the spin-off then turn to portfolio management and origination followed by commentary on the state of the industry and capital markets before concluding. For the second quarter, AFC generated distributable earnings of $0.56 per basic weighted average share of common stock. As a reminder, distributable earnings is the primary metric the Board of Directors considers when declaring AFC's quarterly dividend. The Board declared the fifth consecutive $0.48 dividend, which was paid on July 15, 2024, to shareholders of record as of June 24, 2024. Also, in connection with the spin-off, the Board declared a special dividend of $0.15, which was paid on July 15, 2024, to shareholders of record as of July 8, 2024. Since going public, we have generated distributable earnings that met or exceeded our dividend each quarter and paid out $6.65 in dividends per share. Going forward, the Board of Directors plans to continue to declare quarterly dividends on its normal cadence. When I joined AFC last November, I said that my three key priorities were to: one, reduce exposure to underperforming credits through active portfolio management; two, to reinvigorate the origination engine; and three, to enhance our underwriting. Since then, we've made significant progress on each priority, highlighted by a successful quarter with several notable loan exits. I'm extremely pleased to announce that in June we successfully exited our largest credit facility, an $84 million loan to a subsidiary of Public Company H. During our last earnings call, we highlighted that the borrower failed to make its April interest payment in May. Less than one month later we sold the loan to…

Thank you, Dan. As a reminder, all Q2 figures discussed are pre-spin. For the quarter ended June 30, 2024, we generated net interest income of $18.4 million and distributable earnings of $11.4 million, or $0.56 per basic weighted average common share, and had a GAAP net income of $16.4 million, or $0.80 per basic weighted average common share. As previously mentioned we believe providing distributable earnings is helpful to shareholders and assessing the overall performance of AFC's business. Distributable earnings represents 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 second quarter of 2024 with $335.4 million of principal outstanding spread across 14 loans. As of August 1, 2024, our portfolio consisted of $287.1 million of principal outstanding across 12 loans following the completion of the spin-off of our CRE portfolio. The weighted average portfolio yield to maturity, which is measured for each loan over the life of such loan was approximately 19% as of June 30, 2024, and August 1, 2024. As of June 30, 2024, we had total assets of $458 million, including cash and cash equivalents of $170.3 million with the majority of our cash currently earning interest of approximately 4.5% to 5.3%. We had $35 million drawn on our line of credit, which was subsequently repaid in full on July 1, 2024. Our line of credit provides us with up to $60 million in available funds that can be drawn as needed. Both the credit lines and the unsecured bonds remain at AFC following the spin-off. As of June 30,…

Thank you. [Operator Instructions] Our first question comes from the line of Pablo Zuanic with Zuanic & Associates. Your line is now open.

Good morning everyone. Maybe the first question for Dan, if you can just – I know it's an earnings call, but if you can just give us more background and color in terms of what you have accomplished in the company since you joined, what you have focused on? That would be helpful to start with that. Thank you.

Yes, absolutely, Pablo. Thanks for the question. So the three priorities that I had when I came in were first to manage underperforming credits. I think, as you've seen from the activity this quarter as well as activity in prior quarters, we made a lot of progress on that front. Getting capital back and being able to recycle that capital into new operators in the space with attractive credit profiles at attractive yields. So over the last nine months, that has been a lot of work and a lot of that work was ongoing prior to myself joining, but we've made very significant progress. The job is not finished on that front. There's still a little bit more work to do. But I think overall, we're very pleased with the progress that we've made. Secondly, was focused on origination. AFC had been more focused on commercial real estate for about the prior 18 to 24 months of me joining and hadn't been as active in the cannabis space given some of the vintages that were coming out and the performance in the market that we were seeing. We're now back in the market and have $57 million of origination today. We're in active dialogues with, I think, a great vintage of quality operators that are sitting in our pipeline and very happy to be back on the offensive and deploying existing capital as well as some of the capital that we've got back from some of the portfolio management efforts. And then finally, is just being very active on the underwriting side of things. I think the existing team, Len and Robyn as well as everyone else over at the AFC side of things has a wealth of experience on the direct lending structuring and credit side of things and provides a very helpful top-down lens on the underwrite, and given my background on the operations side of things during my time at Ascend, that allows me to come in and do the bottoms-up evaluation of growth facilities, retail sites, just adding a little bit more context to the underwrite and looking at each operation on a de novo basis. And that's something that, I have a decent amount of experience or a wealth of experience from my five years at Ascend and the scars that I have on my back working to help build that business and is proving very useful as we're looking at new credits in the portfolio.

Thank you. That's great color. Look, and just one last question. Obviously, I hear you in terms of the demand supply imbalance, right, which is a good backdrop for the industry or for companies like yourself. But any changes that you're seeing on the supply side, right? It seems that maybe it's more regional banks, whether there's more private debt capital out there, whether – when these companies are refinancing, we've seen four or five recently, there seems to be more options or that's not the case necessarily? Thank you.

Yes. I think on the refinancing side of things, it's primarily the same players. I believe somewhere around three quarters of the participants in one of the refinancings were an existing player. The other recent Tier 2 financing was a player that's been active in the space previously and someone that we see from time to time. So we're seeing a lot of the same folks out there to be quite honest. I think on the regional bank side of things, we're not really running into those players much at all. One of those competitors is public. I think they've done $14 million into the space year-to-date this year. And some of the other players there are pulling back. So it's just not something we're running into, I think, our borrowers' value, the flexible dynamic solutions that we can provide. We're very much a bespoke credit underwriter and capital provider. And each credit and each credit facility is a bit unique, obviously, with the standard protections that we need to protect our investment. But I think we're seeing a lot of people value that flexibility that we can provide relative to what I think is more of a cookie-cutter approach on the regional banking side of things at lower LTVs.

Thank you. Look, I want to add one more if – I don't know if you can – if you're in a position to give any color in terms of a pro forma book, what it looks like, what the new dividend could be range-wise? I don't know any color you can provide in terms of pro forma numbers? Thanks.

Sure. So from a dividend standpoint, I think as Dan said in his remarks, the Board will declare their dividend on the normal cadence. If you think about – we've declared a $0.48 dividend for the last five quarters, I believe. And if you just think about the spin-off, we kept about two thirds of assets and we spun off one third of the asset. In terms of pro forma book, I think Brandon gave you on the Q2 numbers, right, what we spun off. So, we spun off approximately $5.56 of book value per share.

Thank you.

Thank you. [Operator Instructions]

And I'm currently showing no further questions at this time. This does conclude today's conference call. Thank you for your participation and you may now disconnect.