Chicago Atlantic Real Estate Finance(REFI) - 2023 Q4 - Annual Results

Company Overview & Management Insights Executive leadership highlighted improved regulatory conditions, new investment opportunities, and continued growth in loan originations, supported by an extended credit facility Management Commentary Chicago Atlantic's executive leadership highlighted improved regulatory conditions creating new investment opportunities and the anticipated wall of debt maturities among cannabis operators - Executive Chairman John Mazarakis noted that the improved regulatory landscape is feeding new investment opportunities and significantly improving borrower equity value, with a meaningful opportunity over the next 12-18 months from a 'wall of debt maturities' among larger cannabis operators[2] - Co-Chief Executive Officer Tony Cappell highlighted continued growth in gross loan originations, an increase in the weighted average yield to maturity to 19.4%, and improving credit quality of operators, enabling selective capital deployment[2] - The company extended its credit facility until June 2026 and increased its accordion feature up to $150 million to support additional opportunities[2] Operational Performance Chicago Atlantic maintained a robust loan portfolio with significant commitments and a high weighted average yield, alongside active origination and repayment activities Investment Activity As of December 31, 2023, Chicago Atlantic maintained a robust loan portfolio with total commitments of $378.8 million and a high weighted average yield to maturity of 19.4% Portfolio Investment Metrics (as of Dec 31, 2023) | Metric | Value (Dec 31, 2023) | Value (Sep 30, 2023) | Change (QoQ) | | :-------------------------------- | :------------------- | :------------------- | :----------- | | Total Loan Commitments (million $) | $378.8 | N/A | N/A | | Funded Loans (million $) | $371.3 | N/A | N/A | | Future Fundings (million $) | $7.5 | N/A | N/A | | Weighted Average Yield to Maturity (%) | 19.4% | 19.3% | +0.1% | | Real Estate Collateral Coverage (x) | 1.5x | 1.5x | 0x | | Loan to Enterprise Value (%) | 44.1% | 42.5% | +1.6% | | Variable Interest Rate Loans (%) | 81% | 81% | 0% | Fourth Quarter 2023 Originations and Repayments | Activity | Amount (million $) | | :-------------------------------- | :------------- | | Total Gross Originations | $24.7 | | Funded to New Borrowers | $8.6 | | Funded to Existing Borrowers | $16.1 | | Principal Repayments | $13.7 | | Unscheduled Early Repayments | $10.9 | Non-Recurring Fee Income | Period | Amount (million $) | | :-------------------------------- | :------------- | | Q4 2023 | $1.8 | | Q3 2023 | $0.7 | | Change (QoQ) | +$1.1 | Capital Management & Dividends The company extended its credit facility and increased its accordion feature, while consistently paying regular and special cash dividends to shareholders Credit Facility and Liquidity Chicago Atlantic amended its secured revolving credit facility, extending its maturity to June 2026 and increasing the accordion feature to $150 million - On February 28, 2024, Chicago Atlantic amended its $100.0 million secured revolving credit facility, extending the maturity date to June 2026 with a one-year extension option and increasing the accordion feature up to $150.0 million[8] Credit Facility and Leverage | Metric | As of Dec 31, 2023 | As of Mar 11, 2024 | | :-------------------------------- | :------------------- | :------------------- | | Outstanding on Credit Facility (million $) | $66.0 | $94.0 | | Leverage Ratio (Debt to Book Equity) | ~24% | N/A | | Total Liquidity (net of estimated liabilities) (million $) | N/A | ~$10 | Dividend Payments In January 2024, Chicago Atlantic paid a regular quarterly cash dividend of $0.47 per share and a special cash dividend of $0.29 per share for Q4 2023 - On January 12, 2024, Chicago Atlantic paid a regular quarterly cash dividend of $0.47 per share of common stock for Q4 2023[8] - A special cash dividend of $0.29 per share of common stock, included in fiscal 2023 taxable income, was also paid on January 12, 2024[8] Financial Performance - Quarterly Chicago Atlantic reported Q4 2023 net income of $9.4 million, with an 8.0% sequential increase in net interest income, despite higher expenses Fourth Quarter 2023 Financial Results Chicago Atlantic reported a net income of $9.4 million, or $0.51 per diluted share, for Q4 2023, with net interest income increasing by 8.0% sequentially to $14.8 million Fourth Quarter 2023 Key Financial Highlights | Metric | Q4 2023 (million $) | Q3 2023 (million $) | Sequential Change | | :-------------------------------- | :------------- | :------------- | :---------------- | | Net Interest Income | $14.8 | $13.7 | +8.0% | | Total Expenses (before CECL) | $5.8 | N/A | Increase (primarily due to $1.6M increase in net management and incentive fees) | | Total Reserve for CECL | $5.0 | $5.2 | -$0.2 | | Net Income | $9.4 | $10.0 | -5.8% | | Diluted EPS ($) | $0.51 | $0.54 | -5.6% | | Distributable Earnings | $9.8 | $10.5 | -7.0% | | Distributable Earnings per Diluted Share ($) | $0.53 | $0.57 | -7.0% | | Book Value per Common Share ($) | $14.94 | $15.17 | -1.5% (due to special dividend) | - Net interest income included approximately $1.8 million of interest income from prepayment fees and acceleration of original issue discounts[8] - The total reserve for current expected credit losses decreased by $0.2 million to $5.0 million, representing 1.4% of the portfolio principal balance[8] Financial Performance - Annual For full year 2023, Chicago Atlantic achieved $38.7 million in net income and $41.5 million in Distributable Earnings, alongside increased total dividends per share Full Year 2023 Financial Results For the full year 2023, Chicago Atlantic achieved a net income of $38.7 million and Distributable Earnings of $41.5 million, representing a 7.6% year-over-year increase Full Year 2023 Key Financial Highlights | Metric | FY 2023 (million $) | FY 2022 (million $) | Year-over-Year Change | | :-------------------------------- | :------------- | :------------- | :-------------------- | | Net Interest Income | $57.1 | N/A | +17.0% | | Total Expenses (before CECL) | $17.7 | N/A | +39.4% | | Net Income | $38.7 | $32.3 | +19.8% | | Diluted EPS ($) | $2.11 | N/A | N/A | | Distributable Earnings | $41.5 | $37.2 | +7.6% | | Distributable Earnings per Diluted Share ($) | $2.26 | $2.10 | +7.6% | | Total Dividends per Common Share ($) | $2.17 | $2.10 | +3.3% | | Book Value per Common Share ($) | $14.94 | $14.86 | +0.5% | - Total 2023 dividends included regular quarterly dividends totaling $1.88 per diluted share and a special dividend of $0.29 per diluted share[11] 2024 Outlook For 2024, Chicago Atlantic anticipates maintaining a dividend payout ratio of 90% to 100% of Distributable Earnings, with potential special dividends for taxable income Financial Outlook For 2024, Chicago Atlantic anticipates maintaining a dividend payout ratio of approximately 90% to 100% of Distributable Earnings, with potential special dividends - The Company expects to maintain a dividend payout ratio of approximately 90% to 100% based on Distributable Earnings per weighted average diluted share on a full year basis[11] - If taxable income requires additional distribution, the Company expects to meet that requirement with a special dividend in the fourth quarter of 2024[11] Corporate Information & Disclosures This section provides details on investor resources, company background as a commercial mortgage REIT, and disclaimers regarding forward-looking statements Conference Call and Investor Resources Chicago Atlantic hosted a conference call on March 12, 2024, and provides investor resources, including earnings supplemental, on its investor relations website - The Company hosted a conference call on March 12, 2024, at 9:00 a.m. Eastern Time, accessible via webcast or telephone registration[12] - Chicago Atlantic posts important investor information, including its Fourth Quarter 2023 Earnings Supplemental, on its investor relations website (www.refi.reit) and uses this website for material disclosures under Regulation FD[13] About Chicago Atlantic Real Estate Finance, Inc. Chicago Atlantic Real Estate Finance, Inc. (NASDAQ: REFI) is a commercial mortgage REIT specializing in senior secured loans to state-licensed cannabis operators - Chicago Atlantic Real Estate Finance, Inc. (NASDAQ: REFI) is a commercial mortgage REIT[14] - The company originates senior secured loans primarily to state-licensed cannabis operators in limited-license states in the United States[14] - REFI is part of the Chicago Atlantic platform, which has over 70 employees and has deployed over $2.0 billion across more than 70 loans[14] Forward-Looking Statements This section disclaims that the release contains forward-looking statements subject to inherent uncertainties and risks, with no obligation to update them - The release contains forward-looking statements reflecting current views and projections regarding future events and financial performance, identified by specific cautionary language[15] - These statements are subject to inherent uncertainties and are not guarantees of future performance, conditions, or results[15] - The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law[15] Consolidated Financial Statements This section presents Chicago Atlantic's balance sheets, income statements, and reconciliation of distributable earnings for comprehensive financial review Consolidated Balance Sheets The consolidated balance sheets show Chicago Atlantic's financial position as of December 31, 2023, with increases in total assets and stockholders' equity Consolidated Balance Sheet Highlights | Metric | Dec 31, 2023 ($) | Dec 31, 2022 ($) | | :-------------------------------- | :------------- | :------------- | | Assets | | | | Loans held for investment, net | $348,667,963 | $335,332,599 | | Cash and cash equivalents | $7,898,040 | $5,715,827 | | Total Assets | $359,225,597 | $343,271,050 | | Liabilities | | | | Revolving loan | $66,000,000 | $58,000,000 | | Total Liabilities | $87,372,206 | $79,238,027 | | Stockholders' Equity | | | | Total Stockholders' Equity | $271,853,391 | $264,033,023 | | Total Liabilities and Stockholders' Equity | $359,225,597 | $343,271,050 | Consolidated Statements of Income The consolidated statements of income detail Chicago Atlantic's revenues, expenses, and net income for Q4 2023, Q3 2023, and Q4 2022 Consolidated Statements of Income Highlights | Metric | Q4 2023 ($) | Q3 2023 ($) | Q4 2022 ($) | | :-------------------------------- | :------------- | :------------- | :------------- | | Interest income | $16,530,028 | $15,183,450 | $15,993,588 | | Interest expense | $(1,690,543) | $(1,449,143) | $(1,230,966) | | Net interest income | $14,839,485 | $13,734,307 | $14,762,622 | | Total expenses | $5,509,588 | $3,842,876 | $7,506,905 | | Net Income | $9,397,523 | $9,976,998 | $7,255,717 | | Basic EPS ($) | $0.52 | $0.55 | $0.41 | | Diluted EPS ($) | $0.51 | $0.54 | $0.41 | Distributable Earnings and Adjusted Distributable Earnings This section defines and reconciles Distributable Earnings and Adjusted Distributable Earnings, non-GAAP measures used to evaluate performance and dividend capacity - Distributable Earnings is defined as GAAP net income (loss) excluding non-cash equity compensation, depreciation and amortization, unrealized gains/losses, provision for current expected credit losses, and certain one-time events, with accrued income from deferred interest features included[21] - Adjusted Distributable Earnings further excludes certain non-recurring organizational expenses[21] Distributable Earnings Reconciliation | Metric | FY 2023 ($) | FY 2022 ($) | Q4 2023 ($) | Q3 2023 ($) | | :-------------------------------- | :------------- | :------------- | :------------- | :------------- | | Net Income | $38,710,248 | $32,292,477 | $9,397,523 | $9,976,998 | | Stock based compensation | $1,479,736 | $435,623 | $537,131 | $540,426 | | Amortization of debt issuance costs | $550,906 | $563,464 | $145,128 | $146,676 | | Provision for current expected credit losses | $940,385 | $3,887,405 | $(253,495) | $(41,351) | | Distributable Earnings | $41,500,882 | $37,178,969 | $9,758,661 | $10,537,182 | | Adjusted Distributable Earnings | $41,500,882 | $37,178,969 | $9,758,661 | $10,537,182 | | Adjusted Distributable Earnings per Diluted Share ($) | $2.26 | $2.10 | $0.53 | $0.57 |