Chicago Atlantic Real Estate Finance(REFI)2023-11-11 17:33Financial Data and Key Metrics - Adjusted distributable earnings for Q3 2023 was $0.57 per weighted average diluted share, up from $0.55 in Q2 [54] - Q3 earnings per weighted average diluted common share was $0.54, compared to $0.47 in Q2 [60] - Net interest income for Q3 remained consistent with the prior quarter at approximately $13.7 million [63] - The book value as of September 30th increased to $15.17 per common share, compared with $15.06 as of June 30th [68] - The dividend payout ratio for Q3 was approximately 83%, with year-to-date distributions at 80% of taxable income [54] Business Line Data and Key Metrics - Total gross originations increased by $35 million in Q3, with $33 million funded to new borrowers, partially offset by $11 million in principal repayments [30] - The loan portfolio had total commitments of $356 million across 27 portfolio companies, with a weighted average yield to maturity of 19.3% [48] - The portfolio was 81% floating rate, down from 88% last quarter, due to three new fixed-rate loans originated in Q3 [49] - Approximately 74% of the portfolio is fully secured by real estate collateral, with a weighted average real estate coverage of 1.5x [68] Market Data and Key Metrics - The pipeline of actionable deals increased to over $600 million from $400 million last quarter, driven by activity in Maryland, Missouri, and Ohio [14] - The company remains focused on core markets with strong moats and operators excelling in fundamentals [15] - Positive momentum was observed in Western states, with wholesale prices showing signs of stabilization [38] Company Strategy and Industry Competition - The company reaffirmed its 2023 outlook based on results through the first nine months of the year [4] - The company is exploring social equity initiatives in other states, leveraging its scale and expertise in real estate, operational, financial, legal, and credit underwriting [47] - The company believes that larger banks entering the cannabis industry will still prefer proven lenders like Chicago Atlantic due to the learning curve and regulatory hurdles [44] Management Commentary on Operating Environment and Future Outlook - Management remains cautiously optimistic, citing positive developments in several states and the potential rescheduling of cannabis from Schedule I to Schedule III [43] - The company expects the elimination of 280E to improve operator profitability and free cash flow, attracting more equity capital [29] - The company aims to approach leverage equal to 100% of book equity, with a near-term target of 50% [52] Other Important Information - The company funded approximately $19 million of the REIT's $50 million commitment to the Social Equity Investment Fund in Q3 [28] - Loan number 9, which was moved to nonaccrual, is expected to be resolved through a sale, with bids anticipated to exceed the carrying value [58][65] Q&A Session Summary Question: Thoughts on Ohio and other new states - Maryland, Ohio, and Missouri are seeing significant movement, with Ohio's recent ballot passing being particularly encouraging [66] Question: Shift to fixed-rate loans - The company does not expect to move to a fixed-rate structure but acknowledges the benefits of having floors in a declining rate environment [5] Question: Creditworthiness and yield compression - The company has not observed yield compression and expects actual yields to remain stable [11] Question: Loan number 9 resolution - The company expects to resolve Loan number 9 through a sale, with bids anticipated to exceed the carrying value [58][65] Question: Dividend and special dividend - The company is on track to pay a special dividend in Q4, targeting a distribution of 90% to 100% of net income [75] Question: Industry outlook and capital needs - The company believes the industry has bottomed out, with positive momentum in Western states and potential for increased capital needs in new states [38][78]