Earnings call transcript Q3 2022

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Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Chicago Atlantic Real Estate Finance, Inc.

Third Quarter 2022 Earnings Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Partners. SCR of Sullivan Tripp Mr. Sullivan, you begin. may

Tripp Sullivan

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

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

with section Our the our found on be release which results were can with released along this Investor SEC. morning of Relations in supplemental website, filed our earnings press our the

live is A of made being call audio the webcast available today.

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

be securities statements by and dividends of potential During activities. meaning prescribed other including the laws, our deemed of future forward-looking the comments this portfolio, make call, certain future the within loans investments, related and statements to statements pipeline performance financing our may and we

represent including All results to with of to current that other the by review actual cause Chicago various and to the can filings urged disclosed risks materially company's and company, and disclosures forward-looking from subject the are call this Atlantic's the expectations. differ our are statements the carefully of risk uncertainties date as Investors information made judgment in SEC.

distributable We will also adjusted and earnings to, earnings. but non-GAAP distributable measures limited discuss certain not including,

comparable included GAAP Definitions of are most the and these measures the measures our to filings non-GAAP in reconciliations with SEC.

to call the ahead. over turn John Mazarakis. now go Please I'll

John Mazarakis

documentation stressed discipline us we you and morning, Throughout today. this in and the everyone, monitoring. of have Good importance Tripp. joining loan maintaining thank underwriting, loan Thanks, year, for

monthly. state values state as assess also in have markets continued to asset We every evolve

analytical of industry. of everyone in to the methodical, strategy critical markets, so our pragmatic. on investment the that aspects these that potential I this we the continued far remind is made being have again continue and successful want to rely us Given it disruption capital

single the years growth compare was the tobacco with performance last X from The annual other in in Let's to profit to market along growth growth double-digit these with single best. the on the generated in revenue low hand, low digits XXXX along XX% The growth annual 'XX the cannabis digits, revenue of industries XX% wine, market, period. in beer, mid-XX% cannabis the to pharmaceuticals. to range, high other of low at the and mid-XX% same to profit

to sales with in that cannabis opening billion and store approving billion month, highlight use industry increase Cannabis $XX an has move also referendum to May Maryland to growth to in adult this continue need that its being is U.S. first begun adult estimates will with retail significant expected would stock Rhode XXXX Island just by from to early in the from and book grow capital. with in retail I $XX estimates these project to only use conservative. may, and be December XXXX cannabis fact, sales

is impact think could New those an worth has estimates next January. briefly. also done There of mentioning New sales I or don't get the it before in SAFE something York seen that here either. full think amount we've I speculation Act the Banking of increasing Jersey been

providing that believe piece smaller legislation that sides both that still of to may believe we the are this happen. on already While pass, a operators. of be for net Atlantic. positive of Several ultimately this lot local to work compromise loans we smaller will legislation for in there a banks Overall, Chicago is aisle

our will with increase legislation REIT. this own expertise for want capital lower the help their to result capital rather the space, leverage Chicago than an and in to underwriting is Banking that Act as If the to and results the quickly such lending sizable to larger Ultimately, work out in we groups. believe regional expected Atlantic SAFE banks build cost platforms us entering with put they overall to of

our I'm facility credit million group. We us close of this increased to our so. of cost our total accretive our X to and that get I $X.X total. noted working of lower to goal facility because by $XX.X it to quarter for to our last that capital million, #X million banks $XX.X pleased have in a done another to is actively how added million new to investors. syndicated was lending we we successfully increase And $XXX We're announce

will We're source also foreseeable most facility revolver capital the our working to future. us as credit increase of for the accretive size of the overall remain the ultimately in

we release, the for in year. earnings increased our we outlook full disclosed As our

adjusted expecting range to of now $X.XX per $X.XX the in to earnings distributable are We be share.

dividend we the December, the over quarter $X.XX outlook assumes of declare our at fourth expanded use fourth leverage credit year-end $X.XX in range the least balance the for This planned, as to by QX expect quarterly the of facility in for with XX%. Having a of regular to declared quarter. XX%

for We true imply distributable XX% year-end to XXXX. our taxable up also income. earnings to a declared distribute special to would intend before dividend That of up to be

underwriting. We industry have outlook combined cannabis on a approach bullish with a very and to measured disciplined the

have peers right our that projections, shareholders Our ones our and even these the comparable our conservatism to our to more relative outperformance decisions been and has have payouts. been our our leverage dividend on indexes. basis led a and for our believe evident We in

you why here? take from don't Tony, it

Tony Cappell

want to made point Good up earlier John a I about on morning, investment potential. everyone. follow

is some growth distress. all operators. in from in might beyond which impression been for a lot compression, context part, but not headline. every are have What context As of most is general we're we we we we expect, keep pricing are invested. there are continued much you invested, seeing industry, that with but of headlines with might along and in cases the Without data seeing track about operator misguided our in data the and analysis, come There well-documented not pricing trends where those away the state you the

The way in see success every defined created we not are differently it, and equal. all state is prices

Oregon, such September. seen their states per Arizona, roughly competitive Washington price more California, pound January have Colorado, The example. per decreased $XXX pound as $X,XXX pound per of Michigan, good in in a average average wholesale to and an from Here's

states the count. the $XX.XX and Other the is haven't as steep and declines seen pound, Illinois, Maryland, but where Pennsylvania and in such $XX.XX Massachusetts well the states. all period, have between underwriting same per as industry first experience in This percentage the been as Western mover as stayed discipline declined they've and

cultivation, they a are wholesale per then viable of costs operator $X,XXX look we same an at $X,XXX even $X,XXX is a if wholesale at $XXX When a underwriting produce where pound. pricing for and per price The per in market between can whose per $X,XXX pound. pound are producer at pound, goes

our square even The $XXX For foot square average and sales $X,XXX retail An to stores would operator operations, pound structure across cost That's sales portfolio we retail a like is Store in per foot. current per one high-end with retail is produce. viable in per comparable at square Apple foot. California. focus market $X,XXX on or other per

pipeline. origination to Turning our

half We have year. of the in active remained second the very

to the able operators REIT As has until planned, of been increase new its the the size Chicago demand facility. and fulfill could platform Atlantic from credit existing

in retained month, agent facility. our not-too-distant for the be $XXX $XX REIT X-year future. last the for financing million largest with this REIT to needs a operator and facility operator. new in were for million believe participate additional there Just we as The in pleased multistate will opportunities We lead its serve to future that the

structuring While real portfolio. beyond we have originations, estate held stayed strict coverage X.Xx we intense all our in covenants that monitoring, asset collateral well we our that robust leans improve have with have also active financial upfront, on line from and the our borrowers loan the

In addition, continue to XX% loans we of well the floating our to increase amount to above expect of rate portfolio.

put REIT the plans with work leading we of platform the having and and the now reap increase have to again to created. strong, the once is origination benefits demand REIT again, additional potentially facility can to the capital Loan

us investments. Now Andreas will walk through our

Andreas Bodmeier

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

million, an a borrower $XXX,XXX remaining a the of new events with $X commitment quarter New $X.X existing and borrower. through comprised to during originations $X incremental million million were

due As QX REIT's discussed low on QX constraints. the be to earnings call, in the were expected originations to capital

current Subsequent the All extended the strong. of that to REIT to we and had However, be QX. remains facility, end, quarter And holds loan earlier, a Tony the XXXX. maturity Atlantic Chicago pipeline with $XX increase loans mentioned credit the million loan we to until origination the which the expect performing. in are increase originations its REIT of able the

prime the at rate. currently XX% about is based portfolio rate floating of off Our

in So Federal rising potentially able basis the decision another Last result could earnings. QX. the Reserve distributable to points effectively XX% from increase we offset of our XX portfolio XX% in rates. have higher another week's increase the facility year-end, to yield to some leverage been yield XX% credit by manage funds Fed of in to to should on raise by rate that expected interest in the With by impact the

our it to Phil now results. to review I'll financial over turn

Phil Silverman

Thank you, Andreas.

quarter. now for our to Turning the third financial results

of during point our net $X.X prime or increase As increase due QX, to interest rate. The up from sequentially, continued income primarily was portfolio, which expected, impacted the basis bears the floating to XXX which XX.X% QX. rate XX% increase million the a in

the benefited interest Additionally, from QX on company loan our originations. quarter of a recognition full

with for approximately $XXX,XXX. fees consistent professional $XXX,XXX compensation with were professional line fee The includes $X.X and up incentive expenses operating quarter. were income, compared management which fees other prior million, of $X.X to the and nearly expenses million interest were quarter $X.X G&A incentive down Total in while and net fees at G&A stock-based approximately aggregate as the and million, sequentially of of QX management and higher

incentive incentive waived a last will million, fees was in G&A QX manager fees approximately approximately our to QX less $X.X $XXX,XXX year includes which not fees be as full facility, quarters rolling the were anticipate under $XXX,XXX capitalizable upsized The in previous on with to our the approximately in We and XX associated the are credit months costs for compared X of QX. GAAP. XX-month calculated basis. payed These paid which

will XX-month the be waiver XXXX This In $X.X fee from in XXXX. incentive an QX waiver manager QX granted the approximately connection our with calculation excluded QX IPO. rolling million in from fee of XXXX,

result, expect corresponding a and same the incentive earnings the for in distributable decrease for period. an to we fee QX a As increase

end, quarter As credit provision losses of share. for common increased we nearly diluted or average expected $XXX,XXX per weighted $X.XX our by

portfolio last of any to continues opposed to of conditions, company-specific based collateral. on reevaluation the example, our real quarter, X% our estate quality estate to Nearly is Similar secured for impacting overall environment fully was limited factors quarterly current including, and credit as real by or be rate macroeconomic XX% the a reserve increased borrowers. rising of the no

September Our with collateral portfolio average X.Xx distributable CECL of back on added earnings quarters. of was had estate coverage The reserve XXXX. XX, to consistent the real calculation of as prior

amounted compensation which The to QX earnings other depreciation adjustments QX. to distributable include $XXX,XXX amortization, $XXX,XXX and in in to and stock-based approximately compared

Our sequentially $X.XX share from adjusted earnings QX. $X.XX in share up per was QX, for diluted distributable per

share Our common with per book value as XX. June as of September $XX.XX of XX $XX.XX was compared

we're Operator, take questions. to ready now

Operator

of [Operator JMP Our comes comment and question Securities. from Aaron Instructions] Hecht line the from first

Aaron Hecht

been on across how up. the the on cost pipeline there's I the yields when you market credit you thing capital investment getting are of you market? changed you've and up know for today, the you When facility. been with Congrats a seeing keeping of liquidity is yield are your obviously, while. working the extra at on guys landscape? I increase interest investment look that mean, capital significant that for that volatility, Are rates

John Mazarakis

rate smaller to broader paying from to borrowers is soon. to market, rates seeing anytime that probably initial X.XX%. Yes, were increase to for XXX% question. don't have the Keep is our increase mind in those increase for the any XXX% quick going answer -- Thanks expectation absolutely. -- that in the yields relative like the much the before. the In the highlights for the the answer I We're X% subside case,

metric stress So versus define to of broader market. a kind cannabis key the that is in

Aaron Hecht

say? that you you Okay. do guided more deals to simply working your commitments lined existing Is quarter. work? to And let's up? some to Or operators? And think, I guys have this higher putting are some new within leverage, in expecting work is you your then with Or the operators, fourth

Tony Cappell

near perspective, be Yes. there's That the would be right new have commitment now fund Obviously, deals. that to that. in we for the no a for earmarked any ability term. to drawn expectations of But from

higher at So more and kind that's of operators returns. new really

Operator

Our EF from next line of comment question or comes from Gaurav the Mehta Hutton.

Gaurav Mehta

I items. on wanted ask to expense some

facility. expectations million that $X.X the is million prior G&A and how million, of about $X.X mentioned, outside $X.X are credit I as about cost at that? And guess of of the brought expectation end? as then end higher you run which the that, there any think your of of other But G&A, talked you to about of You items should to upsized G&A rate think we higher

Andreas Bodmeier

Gaurav, of increase out, we as third party our than correctly to you to pointed dedicated during increased bank also an the pointed as credit the you thanks G&A for the substantial commitments on $X.X Yes, QX million. slightly question. out, sourced guidance or upsized And pursue internal rather investment manager resources our the a about facility. correctly and we

the rate the in significant cost, increases we although to the driver the on continue for QX that to onetime therefore, run the commitments are as presumably and really facility, we've so pursue noted. And of total further that's Those year. increase

numbers I going of run QX forward. the think expense our indicative are rate

Gaurav Mehta

of your Okay. like I of by versus XQ? on if seems know would items lower the it could you you I other are between as but Maybe understand guidance maybe XQ than higher variance earnings outside earnings help said fee, XQ any guidance the bringing incentive earlier distributable XQ implied XQ. was the than are lower us I that curious XQ, there guess be that, earnings.

Andreas Bodmeier

our the prepared the it's it's will explained a incentive drive slightly. We've is in down predominantly, fee. nature the That It that No, of earnings substantial remarks. fairly difference calculated. really distributable in way

from have hikes We Fed beyond the additional through today. any not what's rate forecasted occurred

not is that So calculations. contemplated in our

fourth the We to and the other expect expenses operations company through of quarter. relatively remain consistent

Operator

or Markets. comes Our Street Smith the line comment Capital Mark Instructions] question [Operator from from next of Lake

Mark Smith

from A me. couple

that should portfolio could First, have little that into a be repayments changes our radar that any up anything we bit? really outlook or on coming

John Mazarakis

that We expectation Yes. And at QX. again, deal one deal our not a new just mature able return. in is be into that will it's we roll is that higher have set to to Well, big. a

we put work Now expectations can there be no are if payoffs. in than very short order. that that, that, pay confident to down, Other does really that are of

Mark Smith

getting of well Perfect. Then mid? rates deals, as the structuring at estate as kind as issues we kind pushback you of look real guys new you look move at collateral look as any floating continued any in to of that for

John Mazarakis

So XX%. deals. -- portfolio We've pick floating the best the from to XX% increase trying floating able the yes, best to we're our been of low the percentage the percentage of to

to fixed So loans. we're loans fixed to floating of committing actively very mindful not loans. we're any converting And any pursuing

mind started the we've So in last since sorting has what of has become couple collateral obviously of increase. in been rates and the been creditworthiness general after to -- quarters top

-- the not We will of conditions. always have mean, I borrowers the push back of -- obviously, regarding regardless conditions

report that to new nothing So on front.

Mark Smith

last And Okay. then for one me.

Missouri really here are for your we change Either Maryland, not opportunities that odds reduce those your maybe and you of a Does in lame think and session duck as passed looking that outlook over maybe mentioned anything maybe Act or next looking getting comments, legalization. risk at look that good it growth here. little months? SAFE but reduce full a then You or bit else of the here the the positive few at

John Mazarakis

X of those to overwhelming states we by the voters. support expecting The thing is that truth were flip because

in -- we've actually of deals the states. actively those were deals and pursuing in So closing we in those process we're made states,

for everyone. It's So positive, both great yes, states. for a net-net story win-win

Operator

over like no Thank I'd remarks. turn additional to in be any the conference Mazarakis closing appears Mr. you. questions for There back to to the queue.

John Mazarakis

thank more put for good I what feel do going wonderful continue to day. another wanted deliver group. everyone. up one. a like by we quarter We much. this we and that do Well, thank scrutiny And you we're the very to quarters Have to hopefully

Operator

Ladies and for conference. today's gentlemen, you thank concludes program. the in participating This

a have now You day. wonderful disconnect. Everyone, may

Tripp Sullivan	SCR Partners, LLC
John Mazarakis	Executive Chairman
Tony Cappell	Chief Executive Officer
Andreas Bodmeier	Co-President and Chief Investment Officer
Phil Silveran	Interim Chief Financial Officer
Aaron Hecht	JMP Securities
Gaurav Mehta	EF Hutton
Mark Smith	Lake Street Capital Markets

Chicago Atlantic Real Estate Finance (REFI) 9 Nov 222022 Q3 Earnings call transcript