WEST PALM BEACH, Fla. - AFC Gamma, Inc. (NASDAQ:AFCG), a lender to the cannabis industry, announced plans to separate its commercial real estate (CRE) portfolio into a new independent publicly traded company, Sunrise Realty Trust, Inc. (NASDAQ:SUNS). The strategic move, unanimously approved by the Board of Directors, is expected to be completed by mid-2024, enabling AFC Gamma to concentrate exclusively on cannabis industry lending.
The upcoming spin-off will create two specialized debt capital providers, with AFC Gamma focusing on the cannabis sector and SUNS targeting CRE in the southern United States. The separation is designed to allow both entities to pursue distinct investment strategies and attract dedicated investor bases.
AFC Gamma's current CRE portfolio includes two funded loans with assets valued at approximately $115 million, while its cannabis lending portfolio comprises 12 funded loans with assets around $330 million. The yields to maturity (YTM) for the loans stand at 16% for CRE and 21% for the cannabis industry, based on current estimates.
Upon completion of the spin-off, AFC Gamma shareholders are slated to receive SUNS common stock on a pro-rata basis and a special cash dividend of $0.15 per common share. SUNS, which plans to elect REIT status, will concentrate on CRE debt investments across various asset classes in the Southern U.S. Brian Sedrish, currently CEO of Southern Realty Trust Inc., is expected to lead SUNS post-separation.
The separation process involves AFC Gamma transferring its CRE business to SUNS, followed by the distribution of SUNS's common stock to AFC Gamma's shareholders. The transaction does not require shareholder approval and is contingent upon the effectiveness of SUNS's registration statement with the SEC and other conditions outlined in the agreement.
The announcement comes amid a market environment characterized by rising interest rates and decreased liquidity, factors that SUNS aims to capitalize on through its CRE lending strategy.
InvestingPro Insights
As AFC Gamma, Inc. (NASDAQ:AFCG) prepares to spin off its commercial real estate portfolio into Sunrise Realty Trust, Inc. (NASDAQ:SUNS), investors are closely monitoring the financial metrics and market performance of AFCG to assess the potential impacts of this strategic move.
One of the key InvestingPro Data points to consider is AFCG's market capitalization, which currently stands at approximately $230.76 million USD. This figure is essential for investors to understand the company's size and market value as it embarks on this significant restructuring.
Investors should also note AFCG's attractive P/E ratio of 6.93, which suggests that the stock may be undervalued compared to earnings. This is further supported by the adjusted P/E ratio for the last twelve months as of Q3 2023, which is reported at 7.19. The low earnings multiple could indicate a potential investment opportunity, especially considering the company's dividend yield of 16.8%, pointing to a substantial return to shareholders.
AFCG's dividend yield is particularly noteworthy, as it aligns with one of the InvestingPro Tips, which highlights that the company pays a significant dividend to shareholders. This could be a compelling factor for income-focused investors, especially in the current market environment where steady income streams are highly valued.
Moreover, AFCG has been profitable over the last twelve months, with a return on assets of 7.22%. This profitability is expected to continue, with analysts predicting the company will maintain its profitability this year. Such financial health could instill confidence in investors considering the upcoming structural changes.
For those looking to delve deeper into AFCG's financials and future prospects, additional InvestingPro Tips are available, including insights on shareholder yield and analyst revisions on earnings. Interested investors can find these valuable tips on the dedicated InvestingPro page for AFCG at https://www.investing.com/pro/AFCG. There are currently 6 additional tips listed, providing a comprehensive analysis of the company's financial position and future outlook.
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The upcoming spin-off of AFCG's CRE portfolio into SUNS is a transformative event for the company, and these InvestingPro Insights provide a snapshot of the financial metrics and analysis that could influence investor sentiment and decision-making during this pivotal time.
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