Advanced Flower Capital (NASDAQ:AFCG), a cannabis real estate investment trust (REIT) has been making waves in the industry with a current dividend yield of 14% and making shareholders very happy. In a recent report, senior analyst Pablo Zuanic highlighted the company’s potential for continued growth and value.
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The Upside Potential For AFCG Investors
The company’s strong performance in 2024, which included over $41 million in new commitments and successful exits, is expected to drive further growth in distributable earnings. Additionally, AFCG’s diversification into license-restricted states has reduced portfolio risk.
While the pace of growth may slow down in 2025, the company’s substantial liquidity of $75 million positions it well to capitalize on future opportunities.
“With over 15% growth so far in 4Q24, including $41 million in new commitments, $20 million in unfunded commitments as of September 30th, successful exits year-to-date, and positive developments in two work-outs, we believe distributable earnings will increase in 4Q24 and 2025,” Zuanic wrote on Wednesday. “As a result, the post-CRE spin dividend of 33 cents per share is well-secured, according to our estimates. Additionally, the recent portfolio diversification and increased exposure to license-restricted states help reduce overall portfolio risk for AFCG.”
Loan Book Expansion
Advanced Flower Capital has continued to grow its loan book, with $116 million in new commitments through November 1st, 2024. Key highlights include a $41 million senior secured credit facility to Story Cannabis in Maryland and additional loans to Sunburn Cannabis, SocietyC, Botanical Sciences, and Gron Edibles.
As of September 30th, 2024, AFCG had $20 million in unfunded commitments and two loans representing 39% of the book were in non-accrual status. What does management say about this? The company’s strategy of diversifying its loan book geographically and by operator has reduced portfolio risk. According to Zuanic, they remain optimistic about the future of these loans, particularly with potential changes in regulations.
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14% Dividend Yield
Zuanic values AFCG based on its attractive dividend yield and potential for future growth. At a share price of $9.62 and a quarterly dividend of $0.33, the stock yields nearly 14%. AFCG has a history of paying out 85% to 100% of its distributable earnings as dividends.
As of September 30th, AFCG’s book value per share (BVPS) was $9.91, meaning the stock is trading slightly below its book value. Zuanic believes there is potential for the BVPS to increase due to successful workouts and asset sales.
Further upside could be driven by faster-than-expected loan book growth, potential dividend hikes, and widening interest spreads. Additionally, a potential reduction in the CECL loss reserve could add value. Zuanic notes that while AFCG may have a higher risk compared to other MJ REITs, its dividend yield makes it attractive.
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