Earnings call transcript Q4 2022

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Operator

Good day, and thank you for standing by. Welcome to the Chicago Atlantic Real Estate Finance, Inc. Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. advised conference be being please Instructions] that is today's recorded. [Operator

the now of to like would conference SCR to Sullivan I Tripp hand over today your Partners. speaker

Tripp Sullivan

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

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

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

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

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

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

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

measures of in earnings to non-GAAP filings discuss reconciliations are adjusted will measures measures We also GAAP the Definitions most SEC. our to, but certain non-GAAP these included comparable with the and limited including, distributable earnings. not distributable and

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

John Mazarakis

thank Good us joining morning Tripp. for you Thanks and today.

available XXXX, to the a entered made success. the completion investors our one as first in the have thank we who our cannabis of take market. represents public alpha Chicago this moment sources a of the as phenomenal few When year our quarter I'd we team saw Atlantic and like it in true this members to company, space year of full As a

opportunities As stats the true this surface three know, often. very quarter provided over how We tobacco, to grown but tread of don't industry number on has those last its has we around years look those growth all to the pharmaceuticals. fast comparing don't to believe potential. I I cannabis at a barely wine, last industries. ground industry this I and encourage beer, scratched of that everyone compared want do to come again,

one anywhere $XX billion capital illicit sales No retail products. that other hand, matter need have next the of in such which medical growth the size, from in billion will of in also industry five hand, use adopters for years. $XX the of currently dollars, within billion with to market to trying the billions of growing source legal tens we somewhere $XX line expectations you a and top few the use, and we're neighborhood billion market, on converting $XX The to the the adult considering be on the new

soon. elected capital to repriced. and institutional of of of that the and loans. be optimists Operators continue one be To four on will why year be this years, last day term maturities will to nature stick to this debt cannabis in alpha, we the maturity in like that's are from by legalization or say, believe with other we federal to honest need existing for lack soon the is some and our perpetual will shorter legislation refinanced in and pass the exploited addition with a part along that within top better represents market this have of the space size tier The tremendous space dislocation

position negotiating flexibility has That to result, longer been a have environment. put a lock in loans. better rising term interest in more they us with the rate hesitant As in

Banking believe end, the some credit in own Our think providers we Capital are of quickly largest have the are sizable well work will in with established. like the currently lending thoughts the more than Banking We space imminent. to to it's Act we space. also and if groups. benefit up because don't passes SAFE form expertise platform capital to than rather platforms within that the ours Act of others the on in that We want put not their impact build the SAFE underwriting

actively in a turned state the we're legalize adult I In also level Minnesota cannabis. want expect that to initiatives use use on Maryland mention SAFE we're state adult states. Act, deals we to both the and to have addition working and Missouri also tracking. is soon

speculation recent memo on is intriguing AG particular is would a AG coal that working memo during Garland the that regarding that rescinded replace is cannabis What scheduling the administration. Sessions Trump new

impact working ours that for be have once result has It capital like could an overall SAFE much our should and more DOJ and on up platforms the proven borrowers. capital been issued, for week the the cost again as us for lower for markets potentially While funnel capital as in some free it to could to Banking. time, it of

Our best is our source facility. of credit currently capital

it the We XXXX. have we to last $XX.X quarter, extended end expanded it million and to have of

option year the extension any fees. retained extra also We without one

and later, grow banking group we're facility working actively As Andreas expand further. note that will the to

$XX.XX advantage $X of we This was book, sell took above of and we a great so it at thought stock month, obviously million request Last execution any from involve some institutional per to did share. not was common also investors underwriters.

targeted than for a way is in we the believe regular year project release, in our to As better earnings. terms expected initiated we our of payouts dividend quarterly we and outlook disclosed rather our range an on distributable a specific XXXX based earnings

to $X.XX quarter. dividend our expect We be least each at

with a rewarded term XX% more will special end. taxable in we We that Should longer to payout a a meet be intent also expect We to continue our better is to to believe XXX% income the dividend distributable maintain payout approach of to need to of dividend. earnings. our thresholds, conservative

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

Anthony Cappell

Good and industry the to our pipeline, focus my our morning in of on general. originations, the would everyone. I the how today on thoughts to about like time think state

We integrated focus continue and vertically many cost in lowest producers of operators, are the best-in-class the whom on markets. to their are

or in local borrowers. by pricing on retail operators before, for more we've and as monitor for to demand. recreational in every reason. We within go we week see experiencing verge were target with we regular use that and opportunities with As how state. limited states then stay market a monitor cultivation our and closely for approval. Missouri, grow described they that vary and like states those that's seen Arkansas have contact of the trending those preference yet recreational Recall with both We're a spike Maryland, adult opportunities state licensed that and The

Turning existing to our pipeline.

continue We be platform. to very across active entire Chicago the Atlantic

cannabis last we operator. as for pricing on our reset million million largest facility its by four-year among operators we As facility. lead we our the that The commitment and REIT agent retains multi-state for believe $XX call, the discuss serving a new $XXX in

to pricing $XX.XX with in In January. million addition, the exposure of to REIT compression. peers, early many continues made with to MariMed even real MariMed more estate back markets its outperform an loan

from and have upfront, With these X.X Recall to our also our we borrowers structuring are robust times we coverage monitoring, real loans loan have the asset addition and financial that intensive have that collateral strict estate covenants. we liens in maintained on others, all portfolio.

we floors. As of the of attractive loans rate rate to XX% with prime ago increase able to amount the as are to of anticipated, also year-end floating percentage quarter from XX%

and operators the pressures some the markets, of aware price later continuing the are well of year. likelihood are increasing compression of many in We costs, facing labor form inflation, recession with in higher

within ensure of not regular This free, believe difficulty] capital. it's assess to address job present. sectors preservation industry with risks any As have to and prepared and industry the on other no lenders, our this but history cannabis commercial us environment challenges our is estate direct better a of real to is, might [technical we these lending basis

exiting enables more As the to underwrite. selective process having sector, many created providers has able we what we and with with environment demand in return basis. of have that increases operators adjusted the us exceeds tighten supply even where are exited and risk capital, increase capital which John the charge, or further opportunity a earlier, even to far be an noted the to of we This on the the structures

will source debt equity that keep our long-term to can to attractive and Chicago for to capital meet with and commitment shareholders. we platform proven platform We're sector, have our demand. positioned continue drive value us across the combined leading Atlantic stringent We confident this to underwriting,

through walk will us Andreas Now, investments. our

Andreas Bodmeier

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

delayed were draw originations subsequent new million four comprised quarter of on term Net to loans borrowers. existing $X.X during the advances

of Our our million. in increased two $XX.X million facilities principle combined of million $XX.X with and new to total our of balances $XX.X $XX.X a originations $XX $XX in facilities million million from credit position for refinancing of the We and also include those one million the retained outstanding other. hold

strong We continued and last raised $X growth to received be subsequent principal in capital In another year-end, the fulfilling in REITs credit early available capital equity we of deploying repayments approximately the to focus million needs period $X.X operators capital borrowers. the to existing very month. on disciplined in and million

to $XX.X to currently With months. million, increase liquidity the of to the facility have we in put REIT credit million work the coming in $XX

the with have the platform continuing with still view continued as facility year. that pipeline funding growth potentially demand. primary banks Chicago our portfolio in to later The and remains full our facility credit means for originations We Atlantic address the join the to discussions

All loans performing. are

of is the Our benefit the during the increase a directly. rate new rate. point improvement prime due quarter, loans about possible off basis increase as average floating within in portfolio of portfolio by XX.X% The point the rates of QX. the floating from allowing basis us weighted the our based closed increase currently yield more quarter That XXX to XXX from primarily rate, XX% is portfolio in was substantial was only prime XX% rising this made which to

in Federal first should expected in Fed of this QX. another half raising yielding increase Reserve rate to With the we portfolio the the continue the to expect see funds year,

from slightly well at QX original increased year-end, but leverage our to targets. leverage Our are we still in below XX% XX%

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

Phil Silveran

Thank you, Andreas.

Turning year. to interest principle QX. interest million our rate economics. in net for $XX in financial approximately QX the results. XX.X% income and and prime $XX.X million yield in two Net $XX.X income increased million from of in million was $X.X the QX to million improvement the $XX.X refinancing now increases compared the The to Total in or resulted improved

and G&A million expense $X $X.X driver $X.X compared the in $X.X QX, in and were Total of incentive fees expenses included aggregate incentive professional expenses fees and expenses million. aggregate Total management of These and line the which to quarter increase million fees compared as is expectations. in professional for G&A of in million, the fees in $X.X the including million The million. QX. QX million incentive primary $XX.X approximately of operating operating year QX. compares with operating of $X.X the in This million is for management and expenses QX of $X.X and fee $XXX,XXX with to were

incentive to I'd quarterly highlight throughout waiver reduction impact longer incentive a will As is million paid a incentive rolling incentive with discussed XXXX, connection similar IPO in rolling that XXXX. no in fee to the and XX-month QX, quarter, the to fee year the the like $X.X way on the a is fiscal incentive in prior larger of the XX-month annual calculated calculation fee in fee last our year XXXX QX basis calculation. contribute of fee

per common shareholders $X.XX share, earnings. total $X.XX per to per distributions per This share QX to XXst, QX XX.X% of was year for share, of earnings was $X.XX and December approximately dividend XXXX. plus diluted a dividend In we special with for dividend distributable regular distributed Adjusted the share amounting ended $X.XX January, per $X.XX year. share the for a of distributable adjusted

credit QX million The Diluted share The year earnings XXXX. the total $X.X due December decrease XXst, approximately in was QX. million December the per common of to XXXX. share a $X.XX for $X.XX earnings $X.XX primarily of expected ended $X.XX per share to diluted was at to compared for common per was XXst, increased reserve $X losses of provision

borrower quarterly well loan representative our The and third-party loss conditions financial macroeconomic reserve of performance considers CECL data as portfolio. both

and portfolio performing Our borrowers currently are remains strong. outlook

based QX. on However, current rising estate limited Approximately environment to of period portfolio XX% real of continued expectations by XX% or of rate collateral. our reserve, real estate X.X% of outstanding outstanding the no performance portfolio which company the the and contributed as CECL secured through approximated our principle principle forecast is having with

portfolio times basis as real XXXX. of estate collateral XXst, of had coverage on a December average Our weighted X.X

adding CECL net Consistent with and prior included depreciation earnings reserves, adjustments to amortization. gap compensation quarters', stock-based to back distributable and income, the

value book was QX XX. $X.XX September as book Our of provision. as $X.XX January in common in and to decline XXst special and per share $XX.XX CECL in $XX.XX the share value was of December paid attributable fourth declared The with compared the dividend quarter sequential per

Operator, we're now questions. to take ready

Operator

Thank you. Instructions] [Operator

Our first Hecht Aaron comes question from JMP Securities. with

may You proceed.

Aaron Hecht

questions. Thanks guys. my Hey, for taking

the here You regulatory have and the or or for whether industry, I highlighted your a be think priced impacting product those the concerns quite while. pressures availability multiple that that are into stock been pricing capital,

the to of performance portfolio has comfort to understand base, date. Anything give your strong been how better to really because the pool So, investments? you would more health just the to of borrower underwriting or the of your describe investors

John Mazarakis

Yeah.

think Aaron, in those obviously, the that describing space, have pricing price declining which the we the I issues never capital good. is and two environment you're pressures, is

portfolio also do that in or not long-term. here is like five special to for committed to I we've mentioned, is committed as to robust end distributing be XX% years. quarter, We returns the our approach of we're -- see think conservative. share the a to year solid kind next you per But reserve this We're to very and like will $X.XX this XXX%. for here just We're want to I quarter. deliver our dividend

we -- isolated see we Having things. in based price is said in compression on a bit Michigan. again, little in maybe PA, our But underwriting do that, two

dollar estate per time, say dispensary it in the it doesn't conversely, that to focused fund I retail that based matter per side, cultivator parameters and fund and If square the to retail on will is, if cultivator. fund on we And $X,XXX the the the we all we have will foot On foot, over a $X,XXX target square fund margin, cultivation foot. try over selling side, we that we're on real find per the XX% a has square gross we and side. we we that California, will that on really price dispensary XX% what

happen Now metrics. California, cultivator to hard that has find like associated State to with a in But cultivator be Michigan is very in Washington states Oregon. that those or we

performing we depends. all it issues. don't very foresee and So, Generally any the is well portfolio

Aaron Hecht

within a couple loans I were There on certain Any there you what ready loans, driver kind for think into reserves took caused that that quarter. Gotcha. CECL and this moved the that? of insight there the were what's

secondly, we the those And for risk I side -- of product in the think pricing, you the is about at you those which XXXX? to most is one had if of your or regulatory buckets capital, on availability the look talked most carries do portfolio guess problematic, risk, any what were

John Mazarakis

conservative. want question to to be first just first. going take We I'm the

our value third-party any on -- than want are. to be more exhibiting, head we just or the are want also We don't space incrementally unnecessary see, reserving the to cannabis you but respectful And want to we to don't we broader we assets want that price economy. the headwinds But competitors our take to valuations. As lot risk. based just is a not

a maybe than little anticipated. to will know everybody rates more continue up we and go as Interest aggressively

step culmination factors a an basis see and we're And CECL So, trying including is to to respect one on outcome, you take a third-party at just of it portfolio. what our multiple daily with a evaluations. evaluate time, just

think guess to question little your part What most? difficult more we second is, are sort the the the about worried question I quantify. -- a I -- what is of I of So,

Aaron Hecht

Yeah.

John Mazarakis

better to medical. be transition very see the Ohio, faster And happens, risk. would and license limited number conservative, from longer sales, We markets. our recreational use like medical very isolated PA, the the the position, in are takes, states would that it those to adult more the number, the the states certain licenses. concern And They're of in obviously,

that change. we something like would would So be see to probably

we concern rates us. If XXX then rise would basis interest a is The SAFE for the And Act tertiary will much another Disposable rates going environment I is of cannabis say a we're -- Banking sort broader rise. the deal obviously a higher how interest that's concern bearish income economies. beyond will points, going secondary the got with. just to to got that we've have crash, throughout reverberate to

outcomes. prepare trying these just all to So, we're and balance

Aaron Hecht

responses, Gotcha. John. Appreciate the

John Mazarakis

Aaron. you, Anytime. Thank

Operator

you. Thank

next Mehta Our Gaurav Hutton. comes with from EF question

You may proceed.

Gaurav Mehta

how of context, about volume might Yeah. Thanks. that wanted talked think in in XXXX? guys ask loan we you Good about. headwinds see morning. that you I you that should some maybe about to And deployment the

Phil Silveran

right terms the next the between work And to million from. of I and or the planning million. So, for us that's the expect incremental QX, And capital grow think on key quarter from revolver. growth come is now, where one really again, $XX a we're we to in to building and to quarter $XX perspective continue

Gaurav Mehta

So million $XX $XX or net million to originations? gross in

Phil Silveran

$XX to million right. $XX million, that's

Gaurav Mehta

And of conversation your with any your lending how's Okay. do and terms guess, you this partners, expansion expanding in line, year? credit I going expect

Anthony Cappell

end I Gaurav. a $XXX in speaking mean, up We're exercise there able market. continually to on we're to regular we to basis the accordion with full of expect banks be Yes. this million out the by and year. the Hey,

Gaurav Mehta

Thank you. That's I Okay. all had.

Operator

Thank you. [Operator Instructions]

Smith to Mark Street. Lake We'll of go

You may proceed.

Mark Smith

guys. Hi,

to about a wanted just geographies. bit little off, First talk

give currently more on more others that Maybe some outs that you're states currently than talked about any about. where You you're maybe little you optimistic operating? stress of the call states a

John Mazarakis

with. I that when was are referred the actually PA, -- I it to was concerned we actually state main

optimistic. exceeded I Missouri. and growing that optimistic Missouri our actually presence haven't every mentioned, We we're that We're states Maryland were has of extremely terms in expectation. In Maryland.

Mark Smith

Okay.

John Mazarakis

back from are that come. to -- strategy is states our some has to this Ohio, transition but beginning. Pennsylvania adult goes having use with again, states. There the and respect has been to still medical And like compression, These still to

is that So really a terms overall [indiscernible] value. of in

Mark Smith

similarly, loans then pipeline? in you think confidence being as to as guys And some continue at originate able about new maybe pipeline, what you Okay. guys look the gives the to you

John Mazarakis

demand Yeah. than capital. of is a more supply lot of From seen obviously, I reports of other there around. and demand significantly you've supply going mean, a perspective,

returns basis So, adjusted on much is it ultimately we -- a that the there. as have there's maximize new out far and as just pick risk of litter, a not competition our loans, can because

Mark Smith

you And new about. at on any pipeline, Minnesota thoughts breakdown states kind or guys the or that talking regulatory of you're operate you look to either states, Okay. as you online, existing new like wise coming versus where new states,

think what's the versus breakdown you you the operate? of about As kind new pipeline, currently states of where

John Mazarakis

adult two crystal In you there the can can medical presence term no ways, identify. or are You markets. are are new have have Who I knows, define And have of -- states, ball. that listed, right? use states Mark, that don't to harder those currently term that a

In guess because my to hasn't be side, high several medical happened convert side that terms turned be list unusual the use, -- convert state on adult has an Minnesota Minnesota which is house senate and the of It phenomena. would the that to both in will is would decades. on democratic

state one that the stands So, out. kind is of that

complete But will has I terms Obviously, has everyone's adult already confirmed been commence had of expectations. exceeded wrecked. yet. that be Everyone month, not full which is And is guessing. would others, that Xst. use saying sales In July one Maryland just Missouri

of in think, month, one over three occurred x of has two line to month I month. retail in somewhere ballpark up once the Missouri gone revenue transition top the

Mark Smith

Okay.

John Mazarakis

the business. that million in for open first were exceeded $XXX month They sales they

Mark Smith

Great. you guys. Thank

John Mazarakis

Thank you.

Operator

Thank That you Q&A joining. you. for our concludes today. Thank session

Chicago Atlantic Real Estate Finance (REFI) 9 Mar 232022 Q4 Earnings call transcript