UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 7, 2023
(Exact name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||||||
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||||
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |||||
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |||||
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On March 7, 2023, AFC Gamma, Inc. (the "Company") issued a press release announcing its financial and operational results for the fourth quarter and year ended December 31, 2022. A copy of the press release is furnished as Exhibit 99.1 hereto.
The information contained in Item 2.02 of this Current Report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.
On March 7, 2023, the Company announced the appointment of Robyn Tannenbaum as President of the Company. Prior to her appointment, from July 2020 to March 2023, Mrs. Tannenbaum, age 37, most recently served as the Company’s Managing Director, Head of Originations and Investor Relations. Prior to joining the Company, Mrs. Tannenbaum formerly served as Head of Investor Relations at Fifth Street Asset Management Inc. ("Fifth Street") from March 2014 to October 2017 and as a Vice President in Healthcare mergers and acquisitions at CIT Group Inc. Subsequent to her time at Fifth Street, from October 2017 through July 2020, she founded and worked at REC Investor Relations, a boutique investor relations and marketing consulting firm advising healthcare and financial services companies. Mrs. Tannenbaum graduated summa cum laude with a B.S. in Finance, with a concentration in Marketing and a Public Relations minor from Lehigh University. There was no increase in Mrs. Tannenbaum's annual base salary, bonuses or awards in connection with the appointment to President.
Mr. Leonard Tannenbaum, the Company’s Chairman and Chief Executive Officer, and Mrs. Tannenbaum, are husband and wife. Other than between Mr. Tannenbaum and Mrs. Tannenbaum, there are no family relationships between or among any of our executive officers or directors.
Pursuant to Item 404(a) of Regulation S-K under the Exchange Act, the Company has engaged in the following transactions with Mrs. Tannenbaum or Mr. Tannenbaum, her husband.
Management Agreement
Pursuant to the management agreement (as amended from time-to-time, the “Management Agreement”), between the Company and AFC Management, LLC (the “Manager”), which is an entity that is over 70% and 10% beneficially owned by Mr. Tannenbaum and Mrs. Tannenbaum, respectively, the Manager manages our loans and our day-to-day operations, subject at all times to the further terms and conditions set forth in the Management Agreement and such further limitations or parameters as may be imposed from time to time by the Company’s Board of Directors. The Manager receives base management fees that are calculated and payable quarterly in arrears in cash. In addition to the base management fees, the Manager receives incentive compensation with respect to each fiscal quarter (or portion thereof that the Management Agreement is in effect) based upon our achievement of targeted levels of Core Earnings (as defined in the Management Agreement), pursuant to the terms provided in the Management Agreement. To the extent earned by the Manager, the incentive compensation is payable to the Manager quarterly in arrears in cash. The Company pays all of its costs and expenses and reimburses the Manager or its affiliates for expenses of the Manager and its affiliates paid or incurred on our behalf, excepting only those expenses that are specifically the responsibility of the Manager pursuant to the Management Agreement.
For the year ended December 31, 2022, the Company incurred fees payable to the Manager for a base management fee of approximately $3.4 million, which was net of a base management fee rebate of approximately $1.8 million. The incentive compensation fee payable to the Manager for the year ended December 31, 2022 was approximately $12.3 million.
AFC Agent
From time to time, AFC Agent, an entity wholly-owned by Mr. and Mrs. Tannenbaum, serves as the administrative agent to all respective lenders under certain of the Company's credit facilities. The Company does not pay any consideration to AFC Agent for its services as administrative agent under such credit facilities.
Investments in Loans
From time to time, the Company may co-invest in loans with other investment vehicles managed by its management, including Mr. Tannenbaum and Mrs. Tannenbaum, or its affiliates, including the Manager, and their borrowers, including by means of splitting commitments, participating in loans or other means of syndicating loans. The Company is not obligated to provide, nor has it provided, any financial support to the other managed investment vehicles. As of December 31, 2022, there were four co-invested loans held by the Company and its affiliates.
Subsidiary of Private Company G Transactions
In February 2021, in connection with the Subsidiary of Private Company G credit facility, the Company entered into a syndication letter agreement with the Manager to allocate certain of the loans under the Subsidiary of Private Company G credit facility to the Manager to fund or further allocate or syndicate. Additionally, the Company entered into an additional syndication letter agreement relating to the credit facility with the Manager and AFC Investments, LLC an affiliate of the Company that is beneficially owned by Mr. Tannenbaum and Mrs. Tannenbaum. Pursuant to such additional syndication letter agreement, each party agreed that the Company and AFC Investments would severally and not jointly lend certain amounts under the Subsidiary of Private Company G credit facility.
As of December 31, 2022, the Company holds $73.5 million in commitments, of which the Company funded approximately $71.1 million in total principal amount. As of December 31, 2022, the interest rate was U.S. prime rate plus 10.3%, subject to a U.S. prime rate floor of 4.5%, per annum. The aggregate amount of cash interest and PIK interest earned by the Company for the year ended December 31, 2022 was approximately $7.7 million and $1.5 million, respectively. The maturity date of the Subsidiary of Private Company G credit facility is May 1, 2026.
Private Company A Credit Agreement
In July 2020, the Company acquired an interest in a credit agreement with Private Company A. In July 2021, Flower Loan Holdco, LLC, an affiliated entity in which Mr. and Mrs. Tannenbaum are the ultimate beneficial owners, purchased a third-party lender’s interest in such lender’s portion of the loan to Private Company A under such credit facility, and the Company had a 30-day option to purchase such interest from Flower Loan Holdco, LLC. In September 2021, the Company entered into an assignment with the Manager pursuant to which the Manager assigned to the Company its commitment to make loans to Private Company A, which such commitment was funded in September 2021. The Company purchased the loan commitments from the Manager at accreted cost plus accrued PIK interest, and did not pay any fees or premium to the Manager for the acquisition of its loan commitments under the credit agreement with Private Company A. As of December 31, 2022, the Company holds approximately $84.9 million in commitments under the Private Company A credit facility. The loans under the Private Company A credit facility across the tranches of loans with respect to the Company’s allocation bear interest at (i) a blended fixed interest rate of 12.4% per annum, payable in cash, and (ii) a blended PIK interest rate of 3.5% per annum, payable in kind. The aggregate amount of cash interest and PIK interest earned for the year ended December 31, 2022, was approximately $10.2 million and $3.9 million, respectively. The maturity date of the Private Company A credit facility is May 8, 2024.
Private Company I Credit Agreement
In July 2021, the Company entered into a credit agreement with Private Company I pursuant to which the Company and a predecessor entity to AFC Institutional Fund LLC ("AFCIF"), an affiliated entity that is beneficially owned in part by Mr. and Mrs. Tannenbaum, provided a senior secured loan facility (the “Private Company I Credit Facility”). On April 1, 2022, the Company's commitment under the Private Company I Credit Facility was transferred to AFCG TRS1, LLC, a wholly-owned subsidiary of the Company.
As of December 31, 2022, the Company's principal amount outstanding under the Private Company I Credit Facility was approximately $10.9 million. The Private Company I Credit Facility bears interest at per annum rates of (i) 12.0% plus LIBOR, payable in cash, and (ii) 4.5%, payable in kind. The aggregate amount of cash interest and PIK interest earned by the Company for the year ended December 31, 2022 was approximately $1.2 million and $0.8 million, respectively. The maturity date of the Private Company I Credit Facility is August 1, 2026.
Subsidiary of Public Company H Credit Agreement
In December 2021, the Company entered into a credit agreement with Subsidiary of Public Company H. A predecessor entity to AFCIF committed $10.0 million. AFCIF is affiliated entity that is beneficially owned in part by Mr. and Mrs. Tannenbaum.
As of December 31, 2022, the aggregate principal amount outstanding under the Subsidiary of Public Company H credit agreement was $75.0 million. As of December 31, 2022, the interest rate was U.S. prime rate plus 5.8%, subject to a U.S. prime rate floor of 5.5%. The aggregate amount of cash interest earned by the Company for the year ended December 31, 2022 was approximately $6.7 million. The maturity date of the Subsidiary of Public Company H credit agreement is January 1, 2026.
Item 9.01 Financial Statements and Exhibits.
(d)Exhibits
| Exhibit No. | Description | |||||||
| Press Release issued by AFC Gamma, Inc. on March 7, 2023. | ||||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AFC GAMMA, INC. | ||||||||
| By: | /s/ Brett Kaufman | |||||||
| Brett Kaufman | ||||||||
| Chief Financial Officer and Treasurer | ||||||||
| Date: March 7, 2023 | ||||||||
AFC Gamma, Inc. Announces Financial Results for Fourth Quarter and Full Year 2022
Fourth quarter GAAP net income of $2.9 million or $0.14 per basic weighted average common share and
Distributable Earnings(1) of $12.6 million or $0.62 per basic weighted average common share
Full year GAAP net income of $35.9 million or $1.80 per basic weighted average common share and
Distributable Earnings of $49.9 million or $2.51 per basic weighted average common share
Declared dividend of $0.56 per common share for first quarter 2023
WEST PALM BEACH, FL, March 7, 2023 (GLOBE NEWSWIRE) – AFC Gamma, Inc. (NASDAQ:AFCG) (“AFC Gamma” or the “Company”) today announced its results for the fourth quarter and year ended December 31, 2022.
AFC Gamma reported generally accepted accounting principles (“GAAP”) net income of $2.9 million or $0.14 per basic weighted average common share and Distributable Earnings of $12.6 million or $0.62 per basic weighted average common share for the fourth quarter of 2022. The Company reported GAAP net income of $35.9 million or $1.80 per basic weighted average common share and Distributable Earnings of $49.9 million or $2.51 per basic weighted average common share for the full year 2022.
“AFC Gamma ended the year by delivering strong earnings in a difficult macro environment for cannabis and the broader market,” said the Company’s Chairman and Chief Executive Officer, Leonard M. Tannenbaum. “Looking forward, we are pleased with our liquidity position, which is generally in-line with our cash position as of December 31, 2022. Our liquidity was enhanced by repayments over the course of 2022 and includes our currently undrawn revolving credit facility. We believe our focus on credit quality, coupled with our ample liquidity, will prove valuable as we look to deploy capital both in commercial real estate assets and state-compliant cannabis operators over the course of 2023.”
Common Stock Dividend
On December 15, 2022, the Board of Directors of the Company declared a regular cash dividend of $0.56 per common share for the fourth quarter of 2022. For the fourth quarter of 2022, AFC Gamma distributed $11.4 million in dividends, or $0.56 per common share, compared to Distributable Earnings of $0.62 per basic weighted average common share for such period. For the full year 2022, AFC Gamma distributed $44.8 million in dividends, or $2.23 per common share, compared to Distributable Earnings of $2.51 per basic weighted average common share for such period.
On March 2, 2023, the Board of Directors of the Company declared a regular cash dividend of $0.56 per common share for the first quarter of 2023. The first quarter 2023 dividend will be payable on April 14, 2023 to common shareholders of record as of March 31, 2023.
Leadership Appointment
The Company is pleased to announce that its Board of Directors has appointed Robyn Tannenbaum, previously the Company’s Managing Director, Head of Originations and Investor Relations, to serve as its President. “Robyn has assumed a crucial role at AFC Gamma since its inception, and we look forward to her taking on additional responsibility for its leadership as the Company expands its investment focus,” said Mr. Thomas Harrison, the Company’s lead independent director.
2023 Annual Shareholders Meeting
The Company’s Board of Directors set May 18, 2023 as the date for the Company’s 2023 Annual Shareholders Meeting, with a record date of March 21, 2023.
1 Distributable Earnings is a non-GAAP financial measure. See the “Non-GAAP Metrics” section of this release for a reconciliation of GAAP Net Income to Distributable Earnings.
1
Additional Information
AFC Gamma issued a presentation of its fourth quarter and full year 2022 results, titled “Fourth Quarter and Annual 2022 Earnings Presentation,” which can be viewed at www.afcgamma.com under the Investor Resources section. The Company also filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2022, with the Securities and Exchange Commission on March 7, 2023.
AFC Gamma routinely posts important information for investors on its website, www.afcgamma.com. The Company intends to use this webpage as a means of disclosing material information, for complying with our disclosure obligations under Regulation FD and to post and update investor presentations and similar materials on a regular basis. AFC Gamma encourages investors, analysts, the media and others interested in AFC Gamma to monitor the Investors section of its website, in addition to following its press releases, SEC filings, public conference calls, presentations, webcasts and other information posted from time to time on the website. To sign-up for email-notifications, please visit the “Email Alerts” section of the website under the “IR Resources” section.
Conference Call & Discussion of Financial Results
AFC Gamma, Inc. will host a conference call at 10:00 am (Eastern Time) on Tuesday, March 7, 2023, to discuss its quarterly financial results. All interested parties are welcome to participate. The call will be available through a live audio webcast at the Investor Relations section of AFC Gamma’s website found here: AFC Gamma -- Investor Relations. To participate via telephone, please register in advance at this link. Upon registration, all telephone participants will receive a confirmation email detailing how to join the conference call, including the dial-in number along with a unique passcode and registrant ID that can be used to access the call. The complete webcast will be archived for 90 days on the Investor Relations section of AFC Gamma’s website.
About AFC Gamma
AFC Gamma, Inc. (NASDAQ:AFCG) is a publicly-traded, institutional lender that originates, structures and underwrites loans secured by commercial real estate and other types of financing solutions. AFC Gamma targets direct lending and bridge loan opportunities typically ranging from $5 million to $100 million across multiple real estate sectors, with a specialization in lending to state-compliant cannabis operators. It is based in West Palm Beach, Florida.
Non-GAAP Metrics
In addition to using certain financial metrics prepared in accordance with GAAP to evaluate our performance, we also use Distributable Earnings to evaluate our performance excluding the effects of certain transactions and GAAP adjustments we believe are not necessarily indicative of our current loan activity and operations. Distributable Earnings is a measure that is not prepared in accordance with GAAP. Distributable Earnings and the other capitalized terms not defined in this section have the meanings ascribed to such terms in our most-recently filed quarterly report. We use this non-GAAP financial measure both to explain our results to shareholders and the investment community and in the internal evaluation and management of our businesses. Our management believes that this non-GAAP financial measure and the information they provide are useful to investors since these measures permit investors and shareholders to assess the overall performance of our business using the same tools that our management uses to evaluate our past performance and prospects for future performance.
The determination of Distributable Earnings is substantially similar to the determination of Core Earnings under our Management Agreement, provided that Core Earnings is a component of the calculation of any Incentive Compensation earned under the Management Agreement for the applicable time period, and thus Core Earnings is calculated without giving effect to Incentive Compensation expense, while the calculation of Distributable Earnings account for any Incentive Compensation earned for such time period. We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding (i) stock-based compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss); provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) provision for current expected credit losses (“CECL”), (v) taxable REIT (as defined below)
2
subsidiary (“TRS”) (income) loss and (vi) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors.
We believe providing Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to shareholders in assessing the overall performance of our business. As a real estate investment trust (“REIT”), we are required to distribute at least 90% of our annual REIT taxable income, subject to certain adjustments, and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of such taxable income. Given these requirements and our belief that dividends are generally one of the principal reasons that shareholders invest in our common stock, we generally intend to attempt to pay dividends to our shareholders in an amount at least equal to such REIT taxable income, if and to the extent authorized by our Board. Distributable Earnings is one of many factors considered by our Board in authorizing dividends and, while not a direct measure of net taxable income, over time, the measure can be considered a useful indicator of our dividends.
Distributable Earnings is a non-GAAP financial measure and should not be considered as a substitute for GAAP net income. We caution readers that our methodology for calculating Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our reported Distributable Earnings may not be comparable to similar measures presented by other REITs.
3
AFC GAMMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended December 31, 2022 | Year ended December 31, 2022 | ||||||||||
| Revenue | |||||||||||
| Interest income | $ | 21,426,074 | $ | 81,498,717 | |||||||
| Interest expense | (1,722,868) | (6,814,075) | |||||||||
| Net interest income | 19,703,206 | 74,684,642 | |||||||||
| Expenses | |||||||||||
Management and incentive fees, net (less rebate of $477,947 and $1,785,916, respectively) | 3,891,734 | 15,765,250 | |||||||||
General and administrative expenses | 1,326,863 | 4,699,676 | |||||||||
Stock-based compensation | 116,987 | 1,338,469 | |||||||||
Professional fees | 584,436 | 1,601,961 | |||||||||
| Total expenses | 5,920,020 | 23,405,356 | |||||||||
Provision for current expected credit losses | (8,137,335) | (11,177,470) | |||||||||
Realized gains (losses) on sales of investments, net | — | 450,000 | |||||||||
Change in unrealized (losses) gains on loans at fair value, net | (2,031,205) | (3,593,095) | |||||||||
| Net income before income taxes | 3,614,646 | 36,958,721 | |||||||||
| Income tax expense | 676,561 | 1,026,324 | |||||||||
| Net income | $ | 2,938,085 | $ | 35,932,397 | |||||||
| Earnings per common share: | |||||||||||
| Basic earnings per common share (in dollars per share) | $ | 0.14 | $ | 1.80 | |||||||
| Diluted earnings per common share (in dollars per share) | $ | 0.14 | $ | 1.79 | |||||||
| Weighted average number of common shares outstanding: | |||||||||||
| Basic weighted average shares of common stock outstanding (in shares) | 20,300,657 | 19,842,222 | |||||||||
| Diluted weighted average shares of common stock outstanding (in shares) | 20,416,172 | 19,957,737 | |||||||||
| Dividends declared per share of common stock2 | $ | 0.56 | $ | 2.23 | |||||||
2 There is no assurance dividends will continue at these levels or at all.
4
The following table provides a reconciliation of GAAP Net Income to Distributable Earnings:
Three months ended December 31, 2022 | Year ended December 31, 2022 | ||||||||||
Net Income | $ | 2,938,085 | $ | 35,932,397 | |||||||
Adjustments to net income: | |||||||||||
Stock-based compensation expense | 116,987 | 1,338,469 | |||||||||
Depreciation and amortization | — | — | |||||||||
Unrealized losses (gains) or other non-cash items | 2,031,205 | 3,593,095 | |||||||||
Provision for current expected credit losses | 8,137,335 | 11,177,470 | |||||||||
TRS (income) loss | (602,378) | (2,170,348) | |||||||||
One-time events pursuant to changes in GAAP and certain non-cash charges | — | — | |||||||||
| Distributable Earnings | $ | 12,621,234 | $ | 49,871,083 | |||||||
Basic weighted average shares of common stock outstanding (in shares) | 20,300,657 | 19,842,222 | |||||||||
Distributable Earnings per weighted average share | $ | 0.62 | $ | 2.51 | |||||||
Forward-Looking Statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views and projections with respect to, among other things, future events and financial performance. Words such as “believes,” “expects,” “will,” “intends,” “plans,” “guidance,” “estimates,” “projects,” “anticipates,” and “future” or similar expressions are intended to identify forward-looking statements. These forward-looking statements, including statements about our future growth and strategies for such growth, are subject to the inherent uncertainties in predicting future results and conditions and are not guarantees of future performance, conditions or results. Certain factors, including the ability of our manager to locate suitable loan opportunities for us, monitor and actively manage our loan portfolio and implement our investment strategy; the demand for commercial real estate investment and cannabis cultivation and processing facilities; management’s current estimate of expected credit losses and current expected credit loss reserve and other factors could cause actual results and performance to differ materially from those projected in these forward-looking statements. More information on these risks and other potential factors that could affect our business and financial results is included in AFC Gamma’s filings with the SEC, including in the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of AFC Gamma’s most recently filed periodic reports on Form 10-K and subsequent filings. New risks and uncertainties arise over time, and it is not possible to predict those events or how they may affect AFC Gamma. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
5
Investor Relations
AFC GAMMA INVESTOR CONTACT:
Robyn Tannenbaum
(561) 510-2293
ir@afcgamma.com
AFC GAMMA MEDIA CONTACT:
Profile Advisors
Rich Myers
(347) 774-1125
myers@profileadvisors.com
6