REFI - Earnings call transcript Q2 2022 | Chicago Atlantic Real Estate Finance, Inc.

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Operator

Good morning, afternoon, evening, and welcome to the Chicago Atlantic Real Estate Finance Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask a question. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Trip Sullivan. ahead. go Please

Tripp Sullivan

morning. Finance Good for the Atlantic Chicago second Thank Call Welcome to Estate Conference of results review Real quarter you. XXXX. to the the Company's

today Bodmeier, Co-President Chief Chairman; call On Financial Mazarakis, Menze, and and be Officer. Executive Andreas Chief Investment Executive the Officer; Tony will Lindsay Cappell, Chief Officer; John

the Our which of on with found Relations section A can our supplemental released along SEC. the being morning our today. our in webcast call this were audio be results earnings release, with website, of press live is available Investor filed this made

those to For made we herein the call. this not X, of remarks remind of as this will today, August who webcast, to listen are XXXX, the subsequent you updated that and replay be

we of securities statements laws, pipeline portfolio, the statements as be and call, forward-looking deemed comments All judgment activities. performance within including of represent the dividends loans During other this forward-looking Chicago future meaning our certain by Atlantic's the of investments, make urged this may various made date materially with cause and future prescribed risk by in Company's and our SEC. subject Company, and our financing potential disclosed to differ statements related the and Investors results call uncertainties review filings that the the of can to risks actual expectations. current the including from to to are carefully are statements and conference the disclosures other information

are ahead. filings SEC. the turn most call adjusted John but and to non-GAAP earnings. GAAP over these limited go now We measures Definition measures Please discuss also to distributable measures, will distributable I'll included earnings with and non-GAAP Mazarakis. not the certain our including, reconciliations to the in comparable of

John Mazarakis

Tripp. morning, joining thank and for Thanks, you us. Good everyone,

two of real today. have a tale cities We

and one our are the the where strong fundamentals portfolio. in are our focused states within hand, On we

in the vulnerability. general other the market market capital the hand, is On stock and showing the state of

our lot nature is pick losers a markets time destroying of well trying perspective alcohol, into it the and approach integrated had backs limited a up are winners countercyclical discussion growth much of we've invested significant around to of how The What to tobacco and instilling ever and like on pharmaceutical, right focus and industry responds opinion, and the price We about to with vertically in we've date perform. in far who have operators margins crowded weaker it's potential thesis license operators. every states the it industry, superior this industries. experienced compression, the this the can how

a platform. in note busier than will Tony As ever moment, our we are across

are New New York, adding markets and others demand. such and New Jersey, creating licenses gradually Ohio new as new

long-term. for a and don't job understand good market Our appears entrusted trading sector ours. structure, to stability fears control, with our the success their public them with can markets, long-term market of is we responsibility of the REIT growth to calm portfolio. lower ensure it have operators the the strategic Until to out the equity continue in value of their be there additional fire the and all we REIT about offering ruled can experience more the but shape the clarity, to the this Private we debt right the capital in to we've Atlantic. and They that Chicago at be make to it's growth growth pursuit no decisions broader think are the the or of any In the have real platform broader with provide established at on markets except Atlantic leverage capital and I creating. debt sale. everything business, Chicago other industry in be our and us participants will

accretive options capital. facility. growth that that our pursue book Therefore, our with any that been to are facility in is form Our value. our available existing always today only threshold redoubling has It's its efforts or be are the accretive through credit other feature growth to obvious we funded accordion new expand to of had existing

in have expected provided the for our year. a the we half our noted release, range As estimates earnings second in of of performance

might would with dividend year quarters, $X.XX to the QX conservative, We for be the XXXX. like full-year dividend end least would our true earnings absent would We are if to to a share expect $X.XX a of of XXXX, for and in to currently which, look the both anticipating special up taxable in at the also our any half that $X additional of lot range increase per QX, the for $X require facility too at equate the distributable $X.XX that to of QX second income. adjusted

the REIT. market this what believe we to presenting, the Given right the calibration make is is for

levered under at is very XX% and only are We value, well covered. our to book dividend

strong to is generating move shareholders. for right take fortress Tony, This for returns date. a to don't have the make We from why our the sheet here? and REIT you balance it

Anthony Cappell

be regulatory more including has Thanks, rising seen of western interest adjustments and the the many inflation in volatile proven everyone. within on macroeconomic in and rates industry. and specifically the cannabis pace with largest compression a More have morning, to market, on volatility the John. lot cannabis reform Good one the of both price years a primarily some issues, to states. of XXXX while states, we reality

it's that requires buy important Ivory is front-end of on monitoring direct tower. loan robust where liquid these It have high relationship. intensive as the yield credit of sell the oversight. borrower Cannabis why significant amount you your lending to lending and in is a not structuring during are paper challenges as or well All

that all borrowers. their guarantee own stock Some form approach include those our license subsidiaries, the beyond borrowers' of the all and leads some on that asset of assets the encumber of particularly pledges examples of of estate, majority getting on all real the our personal

others before the able financial to material any value. up-to-date provide information and deterioration covenants in reporting most their that tabling to our compared strict borrowers early employ the wait you get compliance data. end warnings maintain events we covenant days get majority designed with we in who quarter require vast are side, XX so monthly And might monitoring the after that of On long we to were create

it's our underwrite job As risk. lenders, to

through the the Atlantic participation As the we extremely be leading for to the And when in one become capital increase intend less of created. meet we remains platform will protect of platform. demand its that first to origination immediately we've REIT volatile, how markets Chicago demand it able do have demonstrated space know and The in I size, We capital believe strong. the to our capital. any

will us plan. Now walk and our Andreas capital investments through

Andreas Bodmeier

across XX, XX Tony. loan a grown Thanks, companies. Good loan $XXX XX. to yield had at morning. our average At March weighted to of has XX.X% of It commitments portfolio portfolio XX.X%, maturity from June total up million

quarter New borrower million incremental million, of comprised existing a originations $XX borrowers. $XX were the and of million during to $XX new advances to

we one All had and During current at payoff are performing. the loans maturity. loan quarter,

reinforce Our demand said of this for impact is we rates. the on based to the of the off capital the consumers talking would current XX% floating John the problem rate are portfolio our the so The is book currently isn't call, we of To about beginning growth rising space of have a manage able prime borrowers to whether be there time, lack the terms what effectively available fund this from cannabis demand at environment in perspective in incremental been or accretive value. capital. growth main at to that from issue rate,

our that these whether with capital huge it today's for or dilutive have issue down up. Lindsay review in to debt most at interest been at long-dated never has fixed we that stock this equity always discounts either levels or in has rate financials. then raise, of that And contemplated if solely a existed threshold. anticipation have portfolio, prices rates We to I'll would comments now turn an trading to accretive elevated maturities hopefully, been grow to over equity, our lock and year the our have cleared

Lindsay Menze

Andreas. you, Thank

second to now results the Turning financial for quarter. our

fees credit specific of the of to our quality million expected to QX. and Pursuant or any operating during deployment professional or macroeconomic with weighted fees management due rather factors $X.X proceeds of up which year. in has and overall to still losses sequentially we up reevaluation portfolio $X.X higher the is of our our $X.X $XXX,XXX. million Net conditions. XXX, in as quarter includes quarter, were the of this our G&A but QX. current As common In that we secured X% company's nonrecurring fees credit increased QX. $XXX,XXX, fees million management impacting quarterly fully credit real G&A expected, and expenses is and increased determining guidance noted $X.X $X has $XX.X diluted primarily in million incurred the no within IPO the reserve the in were provision income million, is professional we $X.XX line and million XX% due share. our borrowers, increased for collateral. benefit not facility of reserve, incentive by while estate $X Total to interest real compared limited million, income prior of of previous primarily estate interest the to ASC expenses The use by per average The for QX to the of were incentive sequentially due to saw other full the from of the for

Our June as XXXX. portfolio XX, collateral on coverage of average of had real X.Xx estate

real Tony only mentioned estate earlier, our As collateral. is not

by all the of loans secured All leads. are and borrower equity of our pledges asset

our indication incentive in the sequentially distributable of clear earnings, and our to these $X.XX was consistent reserve of earnings items, up to distributable factoring to not QX, in pay distributable share share with distributable calculation for provide our we back ability are quarters, After was per that QX. to earnings $X.XX a per the back diluted shareholders. While adding calculation adjusted previous earnings in CECL of adjusted added our fees from dividends recall

we take common questions. ready Our of as are XX to book Operator, $XX.XX was now June per value share.

Operator

Aaron Please question [Operator JMP We question-and-answer Securities. now begin Hecht the will ahead. session. comes go Our with Instructions] first from

Aaron Hecht

facility you of everyone. questions. over down considering been maybe what's volatility potential today, my options that a on morning, other markets? converts? are available closer closed the secondly, little financing calmed are couple going Are for markets Or limited less bit with to John, taking Good highlighted given to accretive the any Debt guys. on traditional, last out credit that options of going off? that's then markets or weeks. you that you the Thanks And is preferreds relatively expanding any getting capital capital there, you

John Mazarakis

the We're limits. We off of are them. revolving Any make going facility, start not I'm capital best they converges very source considering any we from that's down second of believe calming any our think looked to another debt can $XX to markets on And in So remaining the don't of part after It's part the I rely the the sense. other And hopefully at terms going And facility $XX options. think side early question. probably QX, are to Frankly, relative that within QX, of the the rates. double we and have of as I inexpensive will market. million million. go as the I we're on. down

Aaron Hecht

business Got over near-term facility in to I near-term? your $XX do the you until liquidity existing liquidity have little a million of that the a and between get just how of manage And much you need it. commitments, basis. of $XX operate think do you $XX day-to-day liquidity you million How that And on terms cash. million,

Anthony Cappell

I Aaron, take, go ahead, So John. can

John Mazarakis

No, Tony, yours. that's was Go ahead. to going say no, I

Anthony Cappell

Yes.

So commitments, that in there items terms some in that, there are credit of in the of lot the facility. discretionary of Aaron, for a some

foreseeable funded private would the and all items for the some all in been fund. demand been But has has be taking there. normally for So the that the private are that future, slated now, fund there the of REIT, through

Aaron Hecht

Makes sense.

jump Thanks. the Okay. queue. back in I’ll

Anthony Cappell

Thanks, Aaron.

Operator

next Our with Mehta from Please comes ahead. EF go question Gaurav Hutton.

Gaurav Mehta

Thanks. Good morning.

through the made about some comments think you about funds. private demand You talked Chicago Atlantic I your meeting just platform. And

demand? provide Atlantic and color you maybe guys side, that are some So you meeting how Chicago the on can platform

Anthony Cappell

and this since. ever fund, fast money has pretty last private was The pace a at launched Yes. been year raising

in So million example, deals of and liquidity just an vehicle. to continued about give year-to-date, we've there's you a funded fair $XXX of that amount

conforming, go the So the the and the have the they once it deals real these fund. private settles normally, being slated are to that are But through conforming they're real REIT estate REIT preference comes which normally through the a funded when to deals. estate will for down, deals everything the this, rather, fully fully rate, because back

Gaurav Mehta

Okay.

up you looking guys to to on your additional to did clarify, expand line, say Second question the that line? credit $XX you're on just million

Andreas Bodmeier

options to existing broadening to $XXX other feature and our the subject facility from participants syndication. facility. as currently, Yes, accordion million bring co-lenders $XX spectrum million credit of the is And an into we're going to banks

Gaurav Mehta

you. Thank Okay.

Operator

from Our Street. comes ahead. next Please question Lake Mark Smith go with

Mark Smith

Hi guys.

Just you states? near operate? broad the on looking continued a Or more are Have like where seen we're industry the of you be industry. is states the on of some thoughts seeing do market from downturn, day-to-day bleed bigger update over a guys for feel these great. What bottom? in Any would you some you

John Mazarakis

you is Thank for John question. that This Mazarakis.

like limited focused the little growth I Michigan some that Washington medical out states of There bit of Colorado, in PA, compression think primarily State. meaningful the California, Western states of see Oregon have the bottoms a has us. in east, states, been a seen and down. for type we surprised is Obviously, we

a well Massachusetts has see though continuously it's continuing of how and is state. Massachusetts a it, it performing and competitive strong in think a really an you has performing even strongly. that has surprised environment perfectly Cannabis it market, been to grow. between has I on oligopoly Michigan depending is sort state, grown really us in also hybrid

course, Of coming is York online. New

bit super it excited but turned that it's they coming states knocked ton are The rec. surprise. the going join it's recreational performed knows to very Ohio. more a of a issued the to house well that rec. basically park. they a Everyone has well. was for that Other And sales. never PA long-term. a decided few though online, has little turn that, Delaware bill. We're Ohio going even voted state and and medical thought We vetoed of of Delaware upside. state rights, unfortunately, was Jersey Delaware really the out about New Governor Senate Governor, The perform think licenses. with had compression, We majority that to has extremely a

huge story. I success think Florida a is

it maybe peak from before sales think recreational I perspective, kick a Although in. medical reaching its

I of the way kind broad I of think market. that's the overview like a see

if topline from of once XXx Xx maybe maybe a even to an states, still of medical from at reaching looking Xx perspective the they're perspective, bottom sales think recreational plateau and to I kind Xx are a kick upside in. a line

a Illinois, multiple the topline bottom So medical effect. the again excited. it from and like Michigan, states, state to We've still moves have for we're time Massachusetts very medical the in line seen time serious rec, whenever and a and

So perspective the that's overall my state the of on industry.

Mark Smith

Perfect. thoughts you And some then on on similar, regulatory hit at the at look updates you or certain any kind federal guys states, as of environment but level?

John Mazarakis

I think wrong surprise may this relief this possibility time. gotten of many I've actually federal a so question sort that there But times. some is us

it of to So something even holding is try to overall. it. that We're happen. will talk want I answer lot breath, a not our but even There be don't beneficial will

cost our market. we'll of into capital. lower think bring will I the more capital It

the of be and will built we that beneficiaries we've brand, phenomenal think I a growth.

Mark Smith

guys. you, Thank Excellent.

John Mazarakis

you. Thank

Operator

Our comes Vivas from question [Operator with Harrison Cowen. Instructions] next

Harrison Vivas

much Kind my wanted the of terms maybe on but questions. for of back Mark's in to Thanks reframe taking double question, it portfolio. Great. so

risk risk evaluation of is So Thanks. you in might Understanding there's of about? not step-up of what that portfolio? my is, reflect that your the a been a the names, rating fundamental concerned driving I how are your geographies of bit question guess, And performance incrementally little the the portfolio.

John Mazarakis

do Lindsay, want to one? take you that

Lindsay Menze

think related a ratings particular that borrower, but our to portfolio, isn't cities. mean, across have rather a any any There think that tale to growth. I that's borrower John noting Yes, with quarters interest related consecutive been and or related GDP kind earlier of negative mentioned John. this specific a two is spreads, conditions Certainly, to of increased good I two the have I of rates risk point issue market general

first has most cannabis in to from However, coming of markets the the grown XX% transitioning from year, of nationally medical recreation. half that

that strong broader So going think borrowers on in with is market ignore portfolio. the we're we we states our but overall, to just what's in, don't our within credit of quality want the the

Harrison Vivas

Okay.

So to not specific it's broad, really truly confirm? just market-driven, just

Lindsay Menze

yes. That's correct,

John Mazarakis

Correct.

Harrison Vivas

we I the New it about then, as think established And favor guess, the going York, really appears Understood. MSO's. that to aren't regulations Okay.

evaluate considerations state opportunity, And your what think So do I you I are the big in opportunity guess, guess is? that how borrower that as terms an of a profile? potential you of as

John Mazarakis

I California. pretty there that New We think York black meaningful is in be sizable is huge It's will success. state. surpass talking a fragmentation the think the is a that may even a about because directly, Everyone our within York market. us then open, benefiting drives higher how massive state, significantly and that be operating New market probably remains much biggest in New the the risk to know It market, the of your risk I but lenders. is is a return – the any be York will sort the middle question great in as answer state same might

So us type of is any as credit providers. fragmentation benefiting

Harrison Vivas

the Understood. rate? talked Okay. floating but rate floating as loans, execute me. about do fixed rate the And XX%. new balance executing targets? execution portion is the is your for portfolio internal of around how how to floating Tony, and between relative you focus tracking guess, you loans, I I obviously, that being you one imagine Last

Anthony Cappell

Yes.

we've floating. for plan pretty has last floating that to months the few we much and everything will the been future done do everything So in that be

loans I new up off anything, done. new off are that's paid paid think either loans if tick going are to as So and or

really end. just much those of that things we're front it's the that on think I So more resolute

a think of benchmark, kind our keep longer over to that is of is XX% increasing that but So plan I time. good period a

Harrison Vivas

will jump back in I much. very Understood. Thanks queue. the

Operator

at today's attending. call. no for earnings time. Thank further concludes this This you are questions There

disconnect. now may You

Chicago Atlantic Real Estate Finance (REFI) 13 Aug 222022 Q2 Earnings call transcript