Chicago Atlantic Real Estate Finance(US:REFI)2023-03-09 16:39Financial Data and Key Metrics Changes - Net interest income increased by $1.8 million or 14.1% to $14.8 million compared to $12.9 million in Q3, with total net interest income for the year at $48.9 million [79] - Adjusted distributable earnings per share for Q4 was $0.57, and $2.11 for the year ended December 31, 2022, with total dividend distributions amounting to $2.10 per share for the year, approximately 99.5% of adjusted distributable earnings [80] - Diluted earnings per common share for the year was $1.82, with Q4 diluted earnings per share at $0.41, a decrease of $0.14 primarily due to increased provision for expected credit losses [81] Business Line Data and Key Metrics Changes - The loan portfolio grew to total loan commitments of $351 million across 22 portfolio companies, with a weighted average yield to maturity of 19.7%, up from 18.3% at September 30 [68] - The percentage of floating rate loans increased from 60% to 83% as of year-end, benefiting from rising rates [75] Market Data and Key Metrics Changes - The cannabis industry is projected to grow from a current size of $30 billion to $40 billion to an expected $50 billion to $75 billion in retail sales within the next five years [11] - Missouri and Maryland have transitioned to adult use, with Missouri exceeding expectations in sales after legalization [12][55] Company Strategy and Development Direction - The company aims to maintain a conservative approach to capital deployment, focusing on strong credit operators and fulfilling growth capital needs of existing borrowers [72] - The strategy includes targeting limited licensed states and monitoring local market pricing to maximize returns on a risk-adjusted basis [63] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about rising interest rates and their potential impact on disposable income and the broader economy, indicating a cautious approach to portfolio management [33][34] - The company remains optimistic about the cannabis market's growth potential, particularly with the anticipated transition from medical to recreational sales in certain states [36][58] Other Important Information - The company expanded its credit facility to $92.5 million and retained an option for a one-year extension without fees [16] - The CECL reserve approximated 1.2% of outstanding principal as of Q4, with 87% of the portfolio secured by real estate [24] Q&A Session Summary Question: What carries the most risk for the portfolio in 2023? - Management indicated that they want to be conservative and are closely monitoring the portfolio, acknowledging that rising interest rates and broader economic headwinds are significant concerns [27][28] Question: How is the health of the borrower base? - Management noted that the portfolio is performing well, with a focus on strong credit operators and a commitment to maintaining a robust underwriting process [29][84] Question: What is the expected loan deployment volume for 2023? - The company plans for loan deployment between $20 million and $30 million in Q1 and Q2, with expectations to grow the credit facility further [39][41] Question: Which states are currently causing stress in operations? - Management highlighted Pennsylvania and Ohio as states of concern due to their conservative medical markets, while expressing optimism about Maryland and Missouri [43][52] Question: How does the company view the pipeline for new loans? - Management expressed confidence in the pipeline, noting that demand for capital significantly exceeds supply, allowing for selective underwriting [47][66]