Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Chicago Atlantic Real Estate Finance Inc (REFI, Financial) has maintained a conservative approach to growing its portfolio, focusing on attractive risk-adjusted returns.
- The company has a strong pipeline of $508 million, prioritizing operators in limited licensed states and those transitioning from medical to adult use.
- REFI successfully raised approximately $6.3 million through its ATM program, issuing shares at a premium-to-book value.
- The loan portfolio totaled $383 million with a weighted average yield to maturity of 18.7%, indicating strong performance.
- The company has low leverage at 26% of book equity and a strong debt service coverage ratio of 5.3 to 1, showcasing financial stability.
Negative Points
- The weighted average yield to maturity decreased from 19.4% to 18.7% due to derisking actions, indicating a slight decline in returns.
- Net interest income remained flat at $13.2 million, with a decrease in gross interest income and interest expenses.
- Operating expenses increased by $150,000 due to incremental stock-based compensation, impacting overall profitability.
- Loan number nine remains on non-accrual status, carrying a reserve for credit losses of approximately $1.7 million, indicating potential credit risk.
- Adjusted distributable earnings per share decreased from $0.52 in Q1 to $0.50 in Q2, reflecting a slight decline in earnings performance.
Q & A Highlights
Q: Can you discuss your capacity to take advantage of origination opportunities in the second half of the year?
A: Peter Sack, Co-Chief Executive Officer: We have $31.5 million of operational liquidity going into the second half of the year and are excited about the opportunities ahead. We are evaluating additional debt and equity capital to capitalize on these opportunities.
Q: With the upcoming presidential election and state elections, what are you looking for from a cannabis perspective, and what could be the potential impacts on the business?
A: Peter Sack, Co-Chief Executive Officer: All eyes are on rescheduling and the rulemaking process before the election. The election could lead to greater dialogue about cannabis policies, which historically leads to progress, even if slow.
Q: Can you update us on the current status of scheduling and any key milestones you are looking for?
A: Peter Sack, Co-Chief Executive Officer: We are awaiting the outcome of the review of the comment period. There is uncertainty, and we are underwriting our loan book conservatively until there is more clarity on rescheduling.
Q: What are you seeing from newly legal states like Ohio and Minnesota, and are there any geographic strengths or weaknesses?
A: Peter Sack, Co-Chief Executive Officer: Ohio's first day of adult-use sales showed promising numbers. We expect more opportunities as dispensary owners expand. Florida's ballot initiative and Pennsylvania's adult-use debate are also areas of focus.
Q: Are you seeing any changes or early signs of build-out ahead of potential rescheduling?
A: Peter Sack, Co-Chief Executive Officer: Some operators are making aggressive moves, while others are more conservative. However, there is increased willingness to take risks compared to six months or a year ago.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
