Chicago Atlantic Real Estate Finance(US:REFI)2023-11-08 12:01Portfolio Composition - As of September 30, 2023, approximately 81.1% of the company's portfolio consisted of floating rate loans, while 18.9% were fixed rate loans[151]. - The company primarily focuses on financing senior secured loans for established state-licensed operators in the cannabis industry, with loans ranging from $5 million to $200 million[145]. - As of September 30, 2023, 26.3% of the principal of loans held in the company's portfolio were backed by personal or corporate guarantees, up from 13.6% as of December 31, 2022[147]. - The company's loans are secured by real estate and other collateral, with strict loan covenants imposed for additional protection[147]. - As of September 30, 2023, the loan portfolio included 27 loans with a carrying value of approximately $338.8 million, compared to 22 loans valued at $339.3 million as of December 31, 2022[182]. - The outstanding principal of the loan portfolio was approximately $341.8 million as of September 30, 2023, compared to $343.0 million as of December 31, 2022[182]. - The weighted-average yield-to-maturity internal rate of return (YTM IRR) for the loan portfolio was 19.3% as of September 30, 2023, down from 19.7% as of December 31, 2022[182]. - Approximately 81.1% of the loan portfolio consisted of floating rate loans as of September 30, 2023, compared to 83.1% as of December 31, 2022[183]. - The largest loan commitment is $30,000,000 with a carrying value of $29,307,787, yielding an interest rate of P+6.5% Cash[184]. - A loan in Michigan has a commitment of $35,891,668 and a carrying value of $38,299,176, with an interest rate of P+6.65% Cash[184]. - The loan portfolio includes a loan with a commitment of $25,000,000 in Illinois, carrying a value of $20,763,000, with an interest rate of P+6% Cash[184]. - A loan in Florida has a commitment of $13,000,000 and a carrying value of $4,863,651, with an interest rate of P+9.25% Cash[184]. - The company has a loan with a commitment of $18,746,662 in New York, carrying a value of $18,417,846, with an interest rate of 15% Cash[186]. - The company has a loan in Ohio with a commitment of $15,000,000, carrying a value of $14,831,662, with an interest rate of P+1.75% Cash[186]. Financial Performance - The company aims to provide attractive, risk-adjusted returns primarily through consistent current income dividends and capital appreciation[144]. - Interest income increased by approximately $1.4 million, or 10%, during the quarter ended September 30, 2023, driven by an increase in the Prime Rate from 6.25% to 8.50%[176]. - Net interest income rose approximately $0.8 million or 6% over the comparative period, attributed to increased interest income offset by higher interest expenses[176]. - Interest income for the nine months ended September 30, 2023, increased by approximately $10.9 million, or 31%, compared to the same period in 2022[179]. - Distributable Earnings for the three months ended September 30, 2023, were $10,537,182, compared to $10,299,294 for the same period in 2022[194]. - Net income for the nine months ended September 30, 2023, was approximately $29.3 million, an increase of $4.3 million compared to $25.0 million for the same period in 2022[202]. - Net cash provided by operating activities increased to approximately $12.9 million in 2023 from $12.4 million in 2022, reflecting a growth of about 4%[203]. - Net cash provided by investing activities was approximately $8.8 million in 2023, a significant recovery from a cash outflow of approximately $120.7 million in 2022[205]. - Cash outflows for loan origination and funding were $67.4 million in 2023, down from $134.3 million in 2022, indicating a reduction of approximately 50%[206][207]. - Net cash used in financing activities was approximately $18.7 million in 2023, compared to a net cash inflow of $37.4 million in 2022[208]. - Cash inflows from common stock sales through direct offerings totaled approximately $7.2 million in 2023, including $6.0 million from a registered direct offering[209]. - Total cash dividends declared for the nine months ended September 30, 2023, amounted to $1.41 per common share, compared to $1.34 per common share in 2022, representing an increase of approximately 5.2%[215]. - The company intends to pay dividends to stockholders in an amount equal to its net taxable income, subject to Board authorization[192]. Risk Management - The company is exposed to market risks primarily related to fluctuations in interest rates, which could impact net interest income and overall financial performance[231]. - The company’s loan portfolio is concentrated in the cannabis industry, which involves significant risks due to federal illegality and regulatory changes[237]. - As of September 30, 2023, the principal amounts of loans are generally protected by underlying collateral value, but risks remain for loans not fully collateralized by real estate[241]. - The company has recorded zero realized loan losses since its inception, indicating strong loan performance and risk management[221]. - The CECL Reserve is estimated using a third-party probability-weighted model, considering historical loss data and macroeconomic forecasts[216][224]. - The top three borrowers represented approximately 29.7% of principal outstanding as of September 30, 2023, with the largest loan accounting for approximately 11.2%[244]. - As of September 30, 2023, 74% of the portfolio was fully secured by real estate, with an average real estate collateral coverage of 1.5x[241]. - The current expected credit loss reserve was approximately $5.1 million, representing 150 basis points of aggregate loan commitments as of September 30, 2023[178]. - The decrease in expected credit losses was attributed to changes in risk ratings and improvements in enterprise valuations of borrowers during the nine months ended September 30, 2023[183]. Operational Strategy - The company intends to grow its portfolio by continuing to make loans to leading operators in the cannabis industry, although there is no assurance of achieving its investment objectives[144]. - The company expects to raise additional equity and/or debt financing to increase liquidity as the cannabis industry evolves[197]. - The company has a Revolving Loan with an outstanding balance of $63.0 million, which is also subject to market interest rate fluctuations[232]. - The company has not incurred any excise tax expense for the three and nine months ended September 30, 2023, indicating compliance with REIT distribution requirements[159]. - The company operates as a commercial mortgage real estate investment trust (REIT) and has elected to be taxed as a REIT since December 31, 2021[149]. - The Shelf Registration Statement became effective on January 19, 2023, allowing the Company to sell up to $500 million of its securities[201].