Adam JacksonAFC Gamma, Inc. (Nasdaq: AFCG) announced plans on Thursday to separate its operations by spinning off its commercial real estate portfolio into a new independent entity, Sunrise Realty Trust, Inc. (SUNS), which wants to gain REIT status.
The move is designed to create two distinct publicly traded companies: AFC Gamma, which will continue its focus on the cannabis industry, and SUNS, which will concentrate on commercial real estate in the southern United States.
The Florida-based company anticipates that the realignment will improve their appeal to investors by offering clearer investment propositions. The separation is expected to be finalized in mid-2024.
AFC Gamma has about $330 million in assets and 12 cannabis loans its funded, while SUNS is starting with around $115 million in assets and two commercial real estate loans they’ve funded, according to a news release.
“AFC Gamma has solidified its position as a leading institutional lender to state-licensed cannabis operators, and we believe now is the right time to spin off our traditional commercial real estate operations into a standalone public company,” CEO Daniel Neville said in a statement.
“As separate companies, we believe each business will be better positioned to pursue tailored growth strategies. Furthermore, each company will benefit from separate cost of capital and will be able to attract an investor base ideally suited for the growth opportunities of its industry.”
SUNS will look to invest in a variety of commercial real estate debt instruments, including senior mortgage loans and mezzanine loans, across multiple asset classes with an emphasis on opportunities for value creation and recapitalization in the Southern U.S.
Upon the separation’s completion, while some corporate management roles will overlap between AFC Gamma and SUNS, each will operate with its own investment team and board of directors, largely composed of independent members.
Brian Sedrish is slated to become CEO of SUNS, leveraging his experience in commercial real estate credit and structured finance to guide the new company.
“We believe that CRE debt markets today present a significant opportunity to capitalize on market dislocations precipitated by the rise in interest rates, declining liquidity and a retrenchment of banks from CRE lending,” Sedrish said.
“With an experienced management team that has a proven track record in CRE credit and structured finance, we aim to successfully execute our business strategy and generate compelling risk-adjusted returns and long-term value for our shareholders.”
The process of spinning off SUNS from AFC Gamma involves the distribution of SUNS shares to AFC Gamma shareholders on a pro-rata basis, a move that does not necessitate shareholder approval.
In addition to the share distribution, AFC Gamma shareholders will receive a special cash dividend as part of the transaction. The successful completion of the spin-off is contingent upon regulatory approvals.
