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Advanced Flower Capital Inc. (AFCG)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024: GAAP EPS of $(0.05) on a GAAP net loss of $(1.0)M; Distributable Earnings (DE) per share of $0.29 as legacy underperforming loans weighed on results; Board declared a Q1 2025 dividend of $0.23, set to align with near-term DE cadence .
  • Sequentially softer vs Q3 2024 (GAAP EPS $0.06; DE/sh $0.35) and well below Q2 2024 (GAAP EPS $0.80; DE/sh $0.56), reflecting continued portfolio clean-up; YoY GAAP EPS improved vs Q4 2023 ($(0.45)), but DE/sh declined (Q4 2024 $0.29 vs $0.49) .
  • Capital deployment runway remains: new $15M senior secured loan to Story of Ohio in February and a $380M active pipeline as of March 1; portfolio yield to maturity ~18%, principal outstanding $356.8M at 12/31/24 and $368.8M at 3/1/25 .
  • Risk/overhangs: underperforming credits (notably Justice Grown/private company G) and CECL/unrealized positions (CECL reserve $30.6M; 10.4% of loans; unrealized losses $19.7M) vs opportunity to redeploy $119M of 2024 paydowns into performing loans—a key driver of earnings normalization .

What Went Well and What Went Wrong

  • What Went Well

    • Origination momentum and pipeline: $135M new commitments closed in 2024, $15M additional closed post-year-end, and >$380M active pipeline as of March 1, supporting forward deployment at attractive risk-adjusted returns .
    • Portfolio yield intact and liquidity available: weighted average yield to maturity ~18%, two revolving facilities totaling $100M capacity with ~$89M available as of March 1 .
    • Portfolio management progress: $119M of paydowns across five underperforming credits in 2024 (including full, at-par exit of a large loan to a subsidiary of a public company), supporting book value through reversal of reserves on exited positions .

  • What Went Wrong

    • Earnings pressure from legacy loans: Q4 DE/sh fell to $0.29 and GAAP EPS to $(0.05), prompting a reset of the dividend to $0.23 to align with the “performing book” while uncertainty around underperformers persists .
    • Credit costs and valuation marks: CECL reserve at $30.6M (10.4% of loans) and unrealized losses at $19.7M at year-end; interest income and net interest income softened through H2 .
    • Justice Grown dispute/defaults under forbearance: management emphasized pursuing rights/remedies, publicly refuting accusations while acknowledging renewed defaults—representing a key portfolio overhang .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
GAAP EPS ($)$(0.45) $0.80 $0.06 $(0.05)
Distributable Earnings per Share ($)$0.49 $0.56 $0.35 $0.29
Net Interest Income ($M)$15.97 $18.40 $8.90 $7.64

Notes:

  • Q4 2024 GAAP EPS and DE/sh as furnished in 8-K press release (Ex. 99.1) and reconciliations; Q3 and Q2 provided via 8-Ks and call remarks .
  • We were unable to retrieve Wall Street consensus estimates from S&P Global due to a temporary data limit; therefore, estimate comparisons are not shown (see Estimates Context) [GetEstimates error].

Segment breakdown: Not applicable (commercial mortgage REIT focused on lending to cannabis operators) .

KPIs

KPIQ2 2024Q3 2024Q4 2024As of Mar 1, 2025
Principal Outstanding ($M)$335.4 $298.7 $356.8 $368.8
Number of Loans14 13 16 17
Portfolio Yield to Maturity (%)~19 ~18 ~18 ~18
CECL Reserve ($M; % of Loans)$25.2; 9.1% $25.3; 10.7% $30.6; 10.4% —
Unrealized Losses on Loans ($M)$15.0 $19.6 $19.7 —
Cash & Cash Equivalents ($M)$170.3 (pre-spin) $122.2 $103.6 —
Book Value per Share ($)$15.21 (pre-spin; $5.56 spun off) $9.42 $9.02 —
Revolving Capacity/Availability$60M LOC; $35M drawn then repaid $60M LOC; $60M repaid 10/1 Two lines totaling $100M; $100M repaid 1/2/25 ~$89M available of $100M

Guidance Changes

MetricPeriodPrevious Guidance/Run-rateCurrent Guidance/DeclarationChange
Dividend per shareQ1 2025$0.33 (Q3 2024 dividend paid) $0.23 declared (payable 4/15/25; record 3/31/25) Lowered
Distributable Earnings cadence (implied)Q1–Q2 2025—Management expects the $0.23 dividend to be “in line or close” to DE/sh in Q1 and Q2 2025 New qualitative alignment
2025 Originations targetFY 20252024 target was $100M (exceeded) No formal 2025 target; to update likely next quarter Deferred

No quantitative guidance on revenue/margins/OpEx provided in Q4 materials .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
Capital supply–demand imbalanceExpect robust demand as AU flips (e.g., Ohio) and refinancing/M&A increase; limited new lenders; targeting mid–high teens IRRs Republican sweep/federal reform stall sustains imbalance; attractive risk-adjusted returns continue Persistent opportunity
Portfolio mgmt of underperformersFull at-par exits and paydowns; reserves added back to book value upon exits $119M of 2024 paydowns; continued focus on recovering underperformers and redeploying into performers Ongoing clean-up; redeployment key
Origination engine/pipeline$57M YTD Q2; >$346M pipeline (Q2); $116M new originations and >$400M pipeline (Q3) $135M 2024 commitments; $15M Story of Ohio closed; >$380M active pipeline Strong and improving quality
Regulatory outlookRescheduling to Schedule III may progress slowly; SAFE momentum weak; lenders likely scarce (Q3) Expect few new capital providers; medium-term opportunity maintains Slower reform; favorable lending setup
Interest-rate exposurePortfolio yield ~19% (Q2); fixed/floor structure positions well for falling rates (Q3) Yield ~18% maintained; reiterated portfolio YTM ~18% Stable yield profile
Justice Grown (private company G)Forbearance; operational improvements noted (Q2) Additional defaults; company’s legal dispute; AFC to pursue rights/remedies; refuted “taking the keys” accusation Elevated credit/legal risk
Dividend policy$0.48/sh pre-spin (Q2); $0.33/sh first post-spin (Q3) Reset to $0.23/sh for Q1 2025 to align with performing book and DE cadence Prioritizing sustainability

Management Commentary

  • Strategy and market backdrop: “We believe that the capital supply and demand imbalance in the cannabis sector will remain in the medium-term… This provides the opportunity for AFC to deploy capital into deals with strong risk adjusted returns,” said CEO Daniel Neville .
  • Dividend alignment: “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” .
  • Portfolio discipline and dispute response: “We are lenders and have no intention of taking the keys… we have never sought to enforce a foreclosure outside of a payment event of default… these accusations are baseless” (re: Justice Grown) .
  • Origination/underwriting: “The addition of Dan… enabled us to use both a top-down and bottoms-up underwriting approach… we decreased… construction lending… $135 million of new commitments [in 2024]” (President/CIO Robyn Tannenbaum) .
  • Financial footing: “As of December 31, 2024, the CECL reserve was $30.6 million or approximately 10.4% of our loans… total shareholder equity was $201.4 million, and our book value per share was $9.02” (CFO) .

Q&A Highlights

  • Justice Grown next steps: Management would not “negotiate in public,” emphasizing dividend reset to a sustainable level based on performing assets and potential upside from redeployment upon paydowns .
  • Pipeline composition and deployment: Opportunities across new medical (e.g., Kentucky), recent AU flips (e.g., Ohio), refinancing, and private M&A; redeployment pace depends on timing/size of recoveries from underperformers .
  • 2025 deployment target and liquidity: Likely to articulate a target next quarter; strong opportunity set; ~$89M revolver availability as of March 1, 2025 .
  • Dividend rationale: $0.33 (Q3) was not extraordinary; more recent developments at Justice Grown and paydowns at private company A informed the Q1 2025 reset to $0.23 aligned to performing book .
  • Pricing and competition: Pricing is situational by collateral/leverage; competitive intensity from regionals has diminished; specialization matters in cannabis lending .

Estimates Context

  • We attempted to retrieve S&P Global (Capital IQ) consensus for Q4 2024 revenue and EPS; however, the request was blocked due to a temporary daily request limit. As a result, we cannot provide a definitive “vs. consensus” comparison for this quarter. Values would normally be sourced from S&P Global.

Key Takeaways for Investors

  • Dividend reset to $0.23/sh signals a conservative posture anchored to performing assets; upside hinges on converting underperformers to cash and redeploying into high-yielding loans (mid-to-high teens IRR targets) .
  • Earnings trajectory should improve as $119M of 2024 underperformer paydowns are redeployed and as new loans (e.g., Story of Ohio) ramp; watch pace of recoveries and deployment vs. pipeline ($380M+) .
  • Credit costs remain the near-term swing factor (CECL 10.4%; unrealized $19.7M at year-end); any resolution/recovery at Justice Grown is a key catalyst/overhang .
  • Structural tailwinds: limited lender supply post-Republican sweep and slower federal reform could sustain attractive spreads and protective structures for specialists like AFC .
  • Balance sheet flexibility: consistent ~18% portfolio YTM, revolver capacity ($100M) with ~$89M available supports opportunistic deployment without relying on external equity near term .
  • Expectation management: no formal 2025 origination target yet; management intends to provide more clarity next quarter—monitor for updated deployment and dividend cadence signals .

Supporting detail and source documents:

  • Q4 2024 8-K and press release (Item 2.02; Ex. 99.1) .
  • Q4 2024 earnings call transcript .
  • Prior quarters: Q3 2024 8-K and call ; Q2 2024 8-K and call .
  • YoY comps: Q4 2023 8-K press release with full P&L and DE reconciliation .