Earnings call transcript Q1 2023

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Operator

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

First Quarter 2023 Earnings Call. [Operator Instructions].

I would now like to hand the conference over to your speaker today, Tripp Sullivan. ahead. go Please

Harry Sullivan

morning. Finance Good for the Atlantic Chicago first 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 Chief Mazarakis, Silverman, and and be Financial Executive Andreas Chief Officer. Investment Executive the Officer; Tony will Phil Cappell, Interim Officer; John

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

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

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

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

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

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

John Mazarakis

we out provider months, we've become all in financial could the capital Thanks, institutionalize bring the Tripp. lending leading to being, credit direct ago. from help sector the and the proven these thesis transpired in I approach past market that's original thesis space. years cannabis quickly several morning, a That With Good believe our everyone.

anticipated lenders in the from of the supposed have that late have attract other do know a pulling We've would us the Originate large in largest to type borrowers shakeout done you're borrowers seen collateral reining originations. with of None and you your back competitor their the and direct space we've the alike. loans, and Create own relationship. so and environment. this lenders the platform of what

base geography loan on rising Maintain accretive predominantly are else. floating your over and structure license access the rates borrowing rate capital. across in capital being air your of if instead sure rate operators your Focus the of and best to assets. a in portfolio recession to Make limited the on levered of the sources environment side all credit rising is underlevered above Diversify likely. and terms protect states is

received I XXXX and Before during we of the that details, I principal due to more want over the from guidance. the release distributable provide we to in to our noted repayments to it prepayment with address our this quarter better-than-anticipated results. we earnings We our affirmed outlook quarter. QX fees reported provided earnings make We whole several Tony turn that

months. among I As advantage take be and on a intentionally we last more XX-plus number noted even of next back are large than late to been our over call, of holding on of largest we've originations selective refinancings MSOs the to the

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

Anthony Cappell

December our XX.X% year $XXX XX, average million XX, commitments weighted loan XX XX.X% loan had and at compared of maturity portfolio companies yield portfolio of Good morning. with a XX.X% a with across At ago. total a March to

New funded originations borrowers. were the during $XXX,XXX million, $XX to new with quarter all but

strong credit fulfill needs borrowers. capital focus in of on the deploying the growth available to existing disciplined We continue to be and capital operators very REIT's

early repayments We which of During prepayment discounts totaling to received unscheduled repayments. million repayments fees these and principal $X $XX.X of issue was received and from acceleration the million, original sales. $XX.X we related quarter, in million

facility We paid million. means can the facility. This remains in the the the facility proceeds, we are funding put down those in and for credit that additional discussions join currently to by coming portfolio million with have Using banks work REIT months. we $XX.X growth, we potentially of the in credit active approximately liquidity primary our $XX to

performing. All loans are

target each of March the to XX% rate prime yield is prime the the from rate based portfolio is our from receives benefit and portfolio We Our average floating XX% now The XX% last rate again Reserve XX% brought XX% of which rate from raised increase Federal up last their the which weighted to from week, X.XX%. estimate rate. that off prime rate, of quarter XXXX. the floating

sheet ratios averaging balance XXX% to book also at with levered compared continues XX% Our at under sheet is shape. year-end. leverage be mortgage XX% great end equity Compared commercial with to at quarter our REITs other of with in balance XXX%,

as that real facility with and from credit noting simple covenants different debt service well is mortgage estate REITs. other I think our worth it's

frequent much Our line, compared on on is our the ratio consolidated of basis quarter a repo a have facility as a mark-to-market credit service In with case, the of more coverage X.X:X basis. is of collateral we end not requirement where a X.XX:X. debt

lose the collateral our that real our to case and in That's commercial a our to estate concern due structured a on interest facility is value. nature there credit mortgage leading applicable of availability not rising may collateral. is levered credit understand rates based in decline We REITs how

to I'd address pipeline. like Lastly, our

of opportunities. $XXX have an pipeline actionable million We in

We pipeline selectively. advantage this but taking of the so very Chicago throughout doing Atlantic platform, are we are

work. one bit a better believe XX-plus periods next industry we growth While be to the we might our of term, portfolio to put in could capital months sacrificing the in near on loan the be

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

Phillip Silverman

compared million for Tony. income you, to $X with the repayments. was Thank X% recognition prepayment acceleration QX nonrecurring quarter Net due and OID approximately of up from principal the fees interest nearly of of from income

positive by the early the the point those prime in of of impact from impacts benefited March. the offset XX in principal repayments. increase also were basis timing We These rate

Total and increased G&A before incentive management CECL manager. provision decrease operating sequentially our professional Aggregate attributable by in fees the expenses for net primarily to $XXX,XXX primarily down XX%, fees. due to the quarter were reimbursement expense to and

distributable for QX. per earnings a dividend ratio payout primarily per approximately We lower diluted distributed losses with for The $X.XX the diluted $X.XX share is fees. $X.XX in dividend in net share credit was lower $X.XX and QX. $X.XX management expected increase QX quarter, and a compared earnings XX%. to resulted QX compared with in for was due provision of Adjusted first which a incentive The of

increased by December XX. total for the reserve principal size as quarter. reserve quarter March during to CECL to The principal reserve We the XX. the of increased of On reversals our of approximately of X.X% X.X% as quarterly determination basis, considered QX as compared CECL attributable the to relative outstanding received $XX,XXX as a we repayments

based of fully estate XX% secured on XX% or with real no estate principal the real outstanding portfolio by Approximately collateral. is having limited

real on as March Our collateral portfolio had XX, X.Xx of average XXXX. weighted of coverage estate a basis

Our book December $XX.XX value XX. to with as as of compared March XX, $XX.XX share per increased of common

to ready Operator, we're questions. now take

Operator

[Operator Instructions].

comes JMP question Aaron Securities. Our from first Hecht from

Aaron Hecht

year of environment John, been today? I'm you challenges last again. just to or your guess, Congress there's is for over banking so. better business thoughts is that note, how the getting describe borrowers for And But it incrementally wondering, if pockets up profitability would the sounds on industry drum the I like or worse trying will for it in think general? on safe Any pass. support then you Obviously,

John Mazarakis

plateau. isn't say more. out there is I there. Aaron, an incremental I And are couldn't There is would agree a we've noticed there what with pockets improvement, but you that

are think we CapEx mean don't West scarce in stabilizing. increases in the expect price meaningful invest the And some start them space. competitive of states really the in upwards. in I have that to XX% in of wholesale been I prices order we very has out ticking seen some cases.

it's you're when still, about comes great. in and existing when Oregon is from But home fact going major the to Washington nothing staved a XXX, capital. is write cultivators seeing to Colorado, from it nothing kind California XXX think that of practically I exodus to So

mean an obviously. provide Out and expecting rising which environment is a we've seen for Maryland, I a I prices. to and excluding going prices think rise. -- East, certainty, it's we're to begin to plateau I'm

With event respect breath. Chicago and have But our will be we Atlantic, not the we positive in Act, much-needed large SAFE before, as because for that's said of a beneficiaries holding we've we're leverage to built space. platform, the a very this

Aaron Hecht

of construction looking to projects. versus Page Right. And how I of to are wanted X Appreciate loans you at assets that looks XX% like of construction period your it just they color they have run do that. a mortgages allocated underwrite time? are providing on already doing lot on and some get was mandate construction supplement, the before are you start flows of And do corporate coverage the construction? for place. borrowers need level they negative a cash a do in can Or to corporate that that loans,

John Mazarakis

So industrial a Midwest. department, XX we in has we expert, millions of built haven't And a construction by really loan in feet Eizenga, space construction square retail funded what led Michael months. who have obviously -- our of over and the

directly, And have We XX answer any question projects funded loans we and we construction over your months. other don't any than currently of existing expansions haven't have don't loans, that pre-revenue any to operations. borrowers have for purely

Operator

comes from Lake question next Mark from Street. Our Smith

Mark Smith

reining and of you little do things over more XX make you talk me. now. your for understand through am to next see kind that much right? question a up or of profile coming like as months? and you process bit reign not I First guys would What sounds why preservation, the more in in originations why? it's of It that us today the here risk walk capital want clarify and about Or right it's I of about opportunities kind thought just thinking sure kind so right. I out but some And kind

John Mazarakis

With XX in part blink. clearly the question. but opportunities first yes, you hear we didn't We're not we so. are MSOs have on the part, desperate pipeline is to definitely But think if or on robust, to. We'll focused the top a kill coming need deploy won't pipeline, to I think respect we think I in I loan will the second capital. the the the months XX be next and we of

extremely couple before So they a maturing killed we've selective and as in process the we've but were funding. deals been

update. that's So the

Mark Smith

to back is Fed rate then some any do appetite any shifting Okay. around loans thoughts have that done, today? the if you for fixed guys And

John Mazarakis

All case think our floating, remain is floors. to a floor, interest increase but floor. scenario I actually us the best our loans have for

So we've been increasing those floors.

Mark Smith

Okay. on of I few the your or that's Any kind outlook months? one the last over coming up for think on anything next And here prepayments update me. Perfect.

Phillip Silverman

capital, as of with the and sources guidance variety safe. that a kind of theme the down, little really quarter institutional the operators the was paid was Thanks, there haven't toward occur in have we've Mark. QX, a to sold repayments no movement bit, a of in consistent able change No, with early I But availability discussed capital paid for of any no think remainder seen for reasons, we what with occurred during being off, don't the prepayments the we across year. that of and for imminently the

Mark Smith

Okay.

walk Would Okay. just one any we on more, you thoughts sneak would operate Walk big changes that aggressive? how see more guys if us through through to business? us I'll you and your were the in Maybe how change business? your you make Act passed, that would outlook picture get here. SAFE Can

John Mazarakis

Yes, little would aggressive. be we probably a more

coming the be would deals. think largest, primarily the access the being those I we And debt equation. we'll think side of beneficiaries to the cheaper capital, of have I from

Now of But mainstream think to broader I going industries with are rates cannabis somewhat capital, U.S. I also kind economy. and cheaper. reflects be the be think, more the of will positioning in that line the the

this but a premium still not a due taboo industry. be that the would So fact the there cheapest, like will still, to be cannabis

I those net-net somewhere will forces. is investors today lines it to where because benefit the two the counteracting think along be of of of sort

Operator

it John remarks. for back would to Mazarakis like I closing to now turn

John Mazarakis

questions. Thank us questions anyone this to joining ask available We're any for all you. you other needs follow-up for morning. Thank if

Operator

in conference. conclude today's you your for This Thank the program. participation does

disconnect. You may now

Chicago Atlantic Real Estate Finance (REFI) 9 May 232023 Q1 Earnings call transcript