AFC Gamma Completes Transition to Business Development Company

AFC Gamma has finalized its corporate transformation from a real estate investment trust (REIT) to a Business Development Company (BDC), with the change made effective retroactively to January 1. The strategic shift, while intended to provide greater operational flexibility, was met with a mixed market reception. After an initial uptick, the company's shares reversed course to close Monday's session down 5.78% at $2.86.

The transition to a BDC structure grants AFC Gamma the ability to originate cash flow-based loans and other debt instruments for operating companies, a departure from its previous REIT mandate. The firm is specifically targeting middle-market businesses, with a noted focus on the cannabis industry, and anticipates providing credit facilities ranging from $10 million to over $100 million.

Concurrent with this change, the company has entered into a new Investment Advisory Agreement with AFC Management LLC, replacing its prior REIT management contract without incurring termination fees. A revised fee schedule for the advisor has been established:
* A base management fee of 1.5% on gross assets (excluding cash), which steps down to 1.0% once assets exceed 200% of net asset value.
* An incentive fee of 17.5% on pre-incentive fee net investment income, subject to a 6.0% annual hurdle rate.

Financial Performance and Investor Concerns

The market's initial optimism was tempered by concerns regarding execution under the new model and the potential impact of the updated fee structure on dividend sustainability. These apprehensions contributed to the stock's decline, which saw an intraday high of $3.04 and a low of $3.85.

Recent financial results highlight the transition's context. For the third quarter of 2025, AFC Gamma reported a GAAP net loss of $12.5 million, or $0.57 per share. This loss was largely attributed to one-time conversion costs and credit loss provisions. However, the distributable income metric, a key measure of dividend-paying capacity, remained positive at $3.54 million, or $0.16 per share.

Should investors sell immediately? Or is it worth buying AFC Gamma?

Sentiment data further reflects investor caution. As of mid-December 2025, short interest stood at approximately 12.65% of the float, requiring 7.2 days to cover based on average trading volume—a level indicating notable skepticism in the market.

Path Forward and Critical Metrics

The central question for AFC Gamma is whether its expanded investment mandate can generate higher-yielding financings. Success depends on the new deals producing sufficient income to cover the advisory fees while maintaining credit quality and limiting losses.

All eyes are now on the upcoming fourth-quarter 2025 results, which will represent the first full reporting period under the BDC regime. Investors will scrutinize key indicators such as distributable income, credit loss rates, and the quality of the new investment pipeline.

From a technical perspective, the equity is testing support near the $2.85 level. A confirmed break below this point could signal further downside risk toward the $2.75 area. Conversely, reclaiming the $3.00 mark would be a positive step in building confidence in the stability of the revamped business model.