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Chicago Atlantic Real Estate Finance(REFI) - 2024 Q4 - Earnings Call Transcript
REFIChicago Atlantic Real Estate Finance(REFI)2025-03-12 18:33
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Financial Data and Key Metrics Changes - The company's net interest income for Q4 was 14.1million,adecreaseof2.714.1 million, a decrease of 2.7% from 14.5 million in Q3, primarily due to a 50 basis point decrease in the prime rate [21] - The total operating expenses, excluding management incentive fees and provision for credit losses, increased by approximately 250,000quarteroverquarter[24]−Thebookvaluepercommonsharedecreasedto250,000 quarter over quarter [24] - The book value per common share decreased to 14.83 as of December 31, 2024, from 14.94asofDecember31,2023,mainlyduetodividendspaidinexcessofGAAPnetincome[29]BusinessLineDataandKeyMetricsChanges−Theloanportfolioprincipaltotaled14.94 as of December 31, 2023, mainly due to dividends paid in excess of GAAP net income [29] Business Line Data and Key Metrics Changes - The loan portfolio principal totaled 410 million across thirty portfolio companies, with a weighted average yield to maturity of 17.2%, down from 18.3% at the end of Q3 [16] - Gross origination during Q4 was 90.7million,with90.7 million, with 52.6 million funded to new borrowers and 38.1milliontoexistingborrowers[16]−ThecannabispipelineacrosstheChicagoAtlanticplatformnowstandsatapproximately38.1 million to existing borrowers [16] - The cannabis pipeline across the Chicago Atlantic platform now stands at approximately 490 million, with current liquidity of approximately 67million[12]MarketDataandKeyMetricsChanges−TheUScannabisindustryisexperiencingmutedconditionsduetothefailureofFlorida′sadult−useballotinitiativeandpricingpressureinsomemarkets,leadingtonearrecordlowsinequityvalues[7][8]−Thecompanyhasdiversifieditsinvestmentsacrossninestates,includingOhio,Nevada,Illinois,Florida,Pennsylvania,Missouri,andMinnesota[11]CompanyStrategyandDevelopmentDirection−Thecompanyfocusesondeployingcapitalwithconsumerandproduct−focusedoperatorsinlimitedlicensejurisdictions,maintainingalowleverageprofile[11]−Thestrategyemphasizescreditandcollateralfirst,aimingtocreateadifferentiatedandlow−leveredrisk−returnprofileinsulatedfromcannabisequityvolatility[9]−Thecompanyaimstobethenumberonetop−performingexchange−listedmortgageREIT,currentlyrankedthirdbasedontotalreturn[10]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementnotedongoinguncertaintysurroundingtaxpolicy,economy,tariffs,inflation,andFederalReserveinterestratedirection[18]−Thecompanyplanstomaintainadividendpayoutratiobasedonbasicdistributableearningspershareof9067 million [12] Market Data and Key Metrics Changes - The US cannabis industry is experiencing muted conditions due to the failure of Florida's adult-use ballot initiative and pricing pressure in some markets, leading to near record lows in equity values [7][8] - The company has diversified its investments across nine states, including Ohio, Nevada, Illinois, Florida, Pennsylvania, Missouri, and Minnesota [11] Company Strategy and Development Direction - The company focuses on deploying capital with consumer and product-focused operators in limited license jurisdictions, maintaining a low leverage profile [11] - The strategy emphasizes credit and collateral first, aiming to create a differentiated and low-levered risk-return profile insulated from cannabis equity volatility [9] - The company aims to be the number one top-performing exchange-listed mortgage REIT, currently ranked third based on total return [10] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing uncertainty surrounding tax policy, economy, tariffs, inflation, and Federal Reserve interest rate direction [18] - The company plans to maintain a dividend payout ratio based on basic distributable earnings per share of 90% to 100% for 2025 [31] - Management expressed confidence in the ability to execute for shareholders despite challenges in the industry [14] Other Important Information - The company raised approximately 38.4 million of net proceeds from common stock issuances through its ATM program [27] - The debt service coverage ratio on a consolidated basis was approximately 5.5 to 1, significantly above the requirement of 1.35 to 1 [20] Q&A Session Summary Question: Can you talk about demand for loans and leverage expectations? - Management indicated that while the profile of demand has changed due to compressed equity valuations, the maturation of the industry offsets this change [34] Question: Update on credit quality and loan number nine? - Overall credit quality remains stable, with only one loan on non-accrual status. Management is working to remedy operational issues with loan number nine [36][37] Question: Thoughts on scheduling and industry reform? - Management stated that the industry is awaiting clearer signals from the administration regarding reform, but they will continue to invest assuming no changes occur [40] Question: How do you view the impact of 280E on borrowers? - Management considers unpaid tax liabilities as a form of indebtedness and incorporates this into their underwriting process [45] Question: Update on New York market? - Management expressed encouragement regarding the progress in New York, highlighting the opening of stores and crackdowns on illegal operators [55] Question: Thoughts on the upcoming debt maturities in 2026? - Management aims to be a lender of choice as maturities arise, emphasizing that the market will likely work through these maturities in a normal course [75]