AFC’s third-quarter profit plunges 91% as cannabis borrowers struggle

Advanced Flower Capital Inc. (NASDAQ: AFCG), formerly known as AFC Gamma, reported sharply lower third-quarter earnings as profit plunged 91% from the second quarter and 82% year-over-year amid ongoing challenges with problem loans.

The Florida-based real estate investment trust posted net income of $1.4 million, down from $16.4 million in the previous quarter and $8 million in the year-ago period. Revenue fell to $10.5 million, missing the average analyst estimate of $12 million, according to Yahoo Finance data.

The revenue decline was mostly due to having multiple large borrowers on nonaccrual status, according to filings. As of Sept. 30, AFC’s portfolio included loans with aggregate commitments of approximately $349.5 million across 13 borrowers, with the top three borrowers representing about 56.5% of outstanding principal balances. The company maintained $122.2 million in cash and cash equivalents on its balance sheet.

One of the company’s largest borrowers was placed on nonaccrual status in March and subsequently entered receivership in November after its credit facility matured without repayment.

Another significant borrower, Subsidiary of Private Company G, which represents about 21% of loan commitments, was also placed on nonaccrual status.

“One of my top priorities when I joined AFC was to reinvigorate our origination engine, and I am proud to announce that we have surpassed our 2024 target of $100 million in new originations,” CEO Daniel Neville said in a statement.

AFC declared a regular cash dividend of 33 cents per common share for the third quarter, distributing an aggregate of $7.2 million to shareholders. The company reported distributable earnings of $7.2 million, or 35 cents per basic weighted average share.

Analysts expect revenue to decline further in the fourth quarter to $12.19 million, with estimates ranging from $9.8 million to $14.88 million. For the full year 2024, analysts project revenue of $57.35 million, down from $64.18 million in 2023.

The results come after AFC completed the spin-off of its commercial real estate arm into an independent publicly traded REIT, Sunrise Realty Trust Inc., in July. The company distributed one share of SUNS common stock for every three shares of AFC stock held by shareholders, according to filings.

In August, it closed an $11 million senior secured credit facility with Private Company Q in Georgia and expanded existing facilities for BeLeaf Medical and Sunburn Cannabis by $7.3 million combined. In October, it provided a $41 million senior secured credit facility to Story of Maryland, which helped the company exceed its 2024 origination target of $100 million. Most recently, it agreed in November to purchase $10 million in senior secured term loans to Subsidiary of Public Company S.

“This is our second transaction with Story Cannabis, a leading private multistate operator and a great example of the Cannabis 3.0 lending opportunities that we are excited to finance,” Neville said last month. “This is a proven team that knows how to scale and operate in cannabis.”

Neville said the company aims to continue identifying “high-quality operators in key markets” while building on recent momentum.