Yahoo Finance Chicago Atlantic Real Estate Finance Inc (REFI) (Q1 2024) Earnings Call Transcript Highlights: ...
Total Commitments: $401 million across 28 portfolio companies.
Weighted Average Yield to Maturity: 19.4%.
Weighted Average Loan to Enterprise Value: 40.5%.
Gross Originations: $22.5 million during the quarter.
Debt Service Coverage Ratio: Approximately 5 to 1.
Outstanding on Credit Facility: $82.3 million as of March 31.
Net Interest Income: Declined to $13.2 million from $14.8 million in Q4 2023.
Interest Expense: Increased by $413,000 or 24.5%.
Total Operating Expenses: Decreased by approximately $1.6 million from Q4 2023.
CECL Reserve: $5.4 million as of March 31.
Adjusted Distributable Earnings Per Share: $0.52 for Q1 2024.
Regular Dividend: $0.47 per common share.
Book Value: $14.97 per common share as of March 31.
Release Date: May 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 (NASDAQ:REFI) has a growing loan portfolio with disciplined management, maintaining strong credit quality and an attractive weighted average portfolio yield.
The company is benefiting from regulatory changes, particularly the DA's pledge to reschedule cannabis, which is expected to increase industry access to capital and investment.
REFI's pipeline of actionable deals stands at $585 million, focusing on operators in limited license states and those transitioning from medical to adult use, indicating potential for growth.
The company successfully issued approximately 896,000 shares through the ATM program at a premium to book value, raising net proceeds of approximately $13.9 million.
REFI maintains a low leverage balance sheet with a debt service coverage ratio significantly above the required level, indicating strong financial health.
Negative Points
Net interest income for the first quarter declined sequentially from the fourth quarter of 2023, primarily due to the lack of unscheduled principal repayments which in the past generated significant prepayment fee income.
Interest expenses increased due to greater weighted average borrowings, putting pressure on the company's margins.
The real estate coverage ratio declined, partially driven by the funding of a loan secured by collateral other than real estate, which could indicate increased risk.
One loan was downgraded from a risk rating of two to three, although it continues to meet its debt service obligations, this could signal potential issues in the loan portfolio.
The competitive landscape in the lending space may see changes over the next 24 months, potentially increasing competition and affecting profitability.
Q & A Highlights
Q: Can you provide more insight into the short and long term impacts of DA scheduling on your business, specifically rather than on the broader cannabis industry? A: John Mazarakis, Executive Chairman of the Board, explained that no significant changes are expected for another 18 to 24 months following the DA's announcement to reschedule cannabis. He emphasized that the real impacts, if any, would only materialize after this period.
Q: Could you discuss the potential changes in the competitive landscape for your company following the DA scheduling? A: John Mazarakis noted that while there is no immediate increase in competition following the DA's announcement, it is speculative that after 24 months, there might be some market compression as capital becomes more efficient and traditional lenders potentially enter the market.
Q: Are there any recent changes in the industry or notable trends among operators that you can share? A: Peter Sack, Co-President and Director, mentioned that interactions with operators have been very positive, with improving creditworthiness observed. He highlighted that the company focuses on mature businesses with strong EBITDA, avoiding early-stage operations despite the availability of capital.
Q: How has the company's financial performance been in this quarter compared to previous quarters? A: Phillip Silverman, Interim Chief Financial Officer, reported a sequential decline in net interest income from the fourth quarter of 2023, primarily due to the absence of unscheduled principal repayments which in the past contributed to prepayment fee income. However, gross interest income saw a slight increase.
Q: Can you provide details on the company's portfolio and credit facility updates? A: Peter Sack shared that as of March 31, the loan portfolio had total commitments of $401 million across 28 companies, with a stable weighted average yield to maturity. The company also increased the accordion of its credit facility up to $150 million and extended its maturity to June 2026.
Q: What are the company's future plans or outlook in terms of dividends and financial guidance? A: Phillip Silverman affirmed the guidance issued in the previous quarter and mentioned that the first quarter regular dividend was maintained at $0.47 per common share, consistent with the prior quarter and the same quarter last year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
