Q4 2024 Chicago Atlantic Real Estate Finance Inc Earnings Call
Operator: Good day and welcome to the Chicago Atlantic Real Estate Finance Inc. fourth quarter 2024 earnings call. All participants will be in listen-only mode.
Good day and welcome to the Chicago, Atlanta Real estate Finance, Inc. Fourth quarter 2024 earnings call.
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Operator: Please note this event is being recorded.
Please note this event is being recorded.
Tripp Sullivan: I would now like to turn the conference over to Tripp Sullivan of Investor Relations. Please go ahead. Thank you.
I would now like to turn the conference over to Tripp Sullivan of Investor Relations. Please go ahead.
Peter Sack: Good morning. Welcome to the Chicago Atlantic Real Estate Finance Conference call to review the company's results. On the call today will be Peter Sack, Co-Chief Executive Officer, David Kite, Chief Operating Officer, and Phil Silverman, Chief Financial Officer. Our results were released this morning in our earnings press release, which can be found on the best relations section of our website, along with our supplemental filed with the SEC. A live audio webcast of this call is being made available today. For those who listened to the replay of this webcast, we remind you that the remarks made herein are as of today and will not be updated subsequent to this call.
Speaker Change: Thank you good morning, welcome to the Chicago, Atlanta Real estate Finance conference call to review the company's results on.
Speaker Change: On the call today will be Peter Sac Co Chief Executive Officer, David Kite, Chief Operating Officer, Gil Silverman, Chief Financial Officer.
Speaker Change: Our results were released this morning in our earnings press release, which can be found on the Investor Relations section of our website along with our supplemental filed with the SEC.
Speaker Change: A live audio webcast of this call is being made available today for those who listen to the replay of this webcast.
Speaker Change: Mind, you that the remarks made herein are as of today will not be updated subsequent to this call.
Peter Sack: During this call, certain comments and statements we make may be deemed forward-looking statements within the meaning prescribed by the security laws, including statements related to the future performance of our portfolio, our pipeline of potential loans, and other investments, future dividends, and financing activities. All forward-looking statements represent Chicago Atlantic's judgment as of the date of this conference call and are subject to risks and uncertainties that can cause actual results to differ materially from our current expectations. Investors are urged to carefully review various disclosures made by the company, including the risk and other information disclosed in the company's filing for the SEC.
Speaker Change: During this call certain comments and statements we make may be deemed forward looking statements within the meaning prescribed by the securities laws, including statements related to the future performance of our portfolio, our pipeline of potential alone and other investments future dividends.
Speaker Change: Activity.
Speaker Change: All forward looking statements represent Chicago Atlanta judgment as of date of this conference call and are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations investors are urged to carefully review various disclosures made by the company, including the risk and other information.
Speaker Change: Closed in the company's filings with the FCC.
Peter Sack: We also will discuss certain non-GAAP measures, including but not limited to distributable earnings. Definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in our filings with the SEC.
Speaker Change: We also will discuss certain non-GAAP measures, including but not limited to distributable earnings definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in our filings with the SEC I'll.
Peter Sack: I'll now turn the call over to Peter Sack. Please go ahead. Thank you, Tripp. Good morning, everyone.
Speaker Change: Now I'll turn the call over to Peter Sir. Please go ahead.
Peter: Thank you chip good morning, everyone.
Peter Sack: I'd like to open this call with a brief discussion of industry developments, accomplishments in Q4, and our outlook as we begin the year. The U.S. cannabis industry turns the year on muted notes. The failure of Florida's adult use ballot initiative, lack of prioritization of federal cannabis reform, and pricing pressure in some markets have contributed to cannabis equity values and implied valuation multiples reaching near record lows.
Speaker Change: I'd like to open this call with a brief discussion of industry development accomplishments in Q4, and our outlook as we begin the year.
Peter: The U S cannabis industry turns to year on muted notes.
Peter: The failure of Florida's adult use ballot initiative lack of prioritization of federal cannabis reform and pricing pressure in some markets have contributed to cannabis equity values and implied valuation multiples, reaching near record lows.
Peter: Yeah.
Peter Sack: Against this backdrop, Chicago Atlantic executed a tremendous fourth quarter. Our results underscore the continued success of a strategy that places credit and collateral first, adds value to our borrowers collaboratively, and is driven by a leading team of industry experts, originators, and underwriters. We aim to create a differentiated and low-levered risk-return profile that is insulated from cannabis equity volatility and outperforms our industry-agnostic mortgage-rate peers. two data points which underscore these achievements now more than four years since inception. from November 4th, 2024, the eve of the November election to March 6th, 2025. Refi stock price increased from $15.13 to $16.15 per share, or 6.7%.
Peter: Against this backdrop, Chicago Atlantic executed a tremendous first fourth quarter.
Peter: Our results underscore the continued success of our strategy that places credit and collateral first add value to our borrowers collaboratively and is driven by a leading team of industry experts originators and underwriters.
Peter: We aimed to create a differentiated and low levered risk return profile that is insulated from cannabis equity volatility and outperforms our industry agnostic mortgage REIT peers.
Two data points, which underscores these achievements now more than four years since inception.
Peter: From November 4th 2024, the Eve of the November election to March six 2025.
Peter: <unk> stock price increased from $15, one three to 16.15 per share or 16 or six 7%.
Peter Sack: And we announced two dividends, while MSOS, the ETF which generally tracks U.S. cannabis operators, declined by 61%. The second and perhaps more important metric Our analysis suggests that benchmarked since inception on a total return basis, assuming dividend reinvestment, refi is the number three top-performing exchange-listed mortgage rate. We aim to be number one.
Peter: And we announced two dividend well M. S. O S E T F, which generally tracks U S cannabis operators declined by 61%.
Peter: The second and perhaps more important metric.
Peter: Our analysis suggests that benchmark since inception on a total return basis, assuming dividend reinvestment.
Peter: <unk> is the number three top performing exchange listed mortgage REIT.
Peter: We aim to be number one.
Peter Sack: Amid industry and economic uncertainty, we focus on deploying capital with consumer and product-focused operators in limited license jurisdictions, at low leverage profiles, and supporting fundamentally sound growth initiatives. We deployed $90.7 million in gross originations in Q4 in nine investments spanning Ohio, Nevada, Illinois, Florida, Pennsylvania, Missouri, and Minnesota, among others. Diversification remains strong across 30 portfolio companies. During the year, we increased our senior secured credit facility to $110 million and closed on a $50 million unsecured term loan at attractive pricing, of which we deployed nearly half net of repayments in the fourth quarter. We delivered $2.06 per share in dividends to our shareholders in 2024.
Peter: Amid industry and economic uncertainty, we focus on deploying capital with consumer and product focused operators in limited license jurisdictions at low leverage profile and supporting fundamentally sound growth initiatives.
Peter: We deployed $97 million in gross originations in Q4, and nine investments spanning Ohio, Nevada, Illinois, Florida, Pennsylvania, Missouri, and Minnesota among others.
Peter: Diversification remains strong across 30 portfolio companies.
Peter: During the year, we increased our senior secured credit facility to $110 million and closed on a $50 million unsecured term loan at attractive pricing, which we deployed nearly half net of repayments in the fourth quarter.
Peter: We delivered 2.06 per share in dividends to our shareholders in 2024.
Peter Sack: The cannabis pipeline across the Chicago Atlantic platform now stands at approximately $490 million and we have current liquidity of approximately $67 million to fund deployment.
Peter: Cannabis pipeline across the Chicago Atlanta platform now stands at approximately $490 million and we have current liquidity of approximately 67 million to fund deployment.
Peter Sack: Before I pass the mic to David Kite, my fellow managing partner and chief operating officer, I'd like to highlight a significant achievement for which he is primarily responsible. In Q1 2025, the administrative agent completed key milestones in the foreclosure on select operating assets of loan number nine, which has been on nonaccrual for some time. Members of the administrative agent were successfully affiliated with the Pennsylvania Department of Health as principals, giving them full operational control of the assets, and we hope that through operational and balance sheet restructuring, we may restore this loan to accrual status this year.
Speaker Change: Before I pass the Mic to David Kate My fellow managing partner and Chief operating Officer, I'd like to highlight a significant achievement for which he is primarily responsible.
Speaker Change: In Q1 2025, the administrative agent completed key milestones in the foreclosure on select the operating assets of low number nine which has been on non accrual for some time.
Speaker Change: Members of the administrative agent we're successfully affiliated with the Pennsylvania Department of Health is principles, giving them full operational control of the asset and we hope that through operational and balance sheet restructuring. We may restore this loan to accrual status this year.
Peter Sack: Defaults, workouts, and restructurings are inevitable byproduct of direct lending. It is an area in which, despite a low default rate, we have considerable expertise and we hope to show definitively in 2025 that we can execute for the benefit of our shareholders.
Speaker Change: Faults workouts and restructurings are inevitable byproduct of direct lending.
Speaker Change: It is an area in which despite a low default rate we have considerable expertise and we hope to show definitively in 2025 that we can execute for the benefit of our shareholders.
David Kite: David, thank you for the efforts, and why don't you take it from here. Thank you, Peter. Appreciate the kind words. But it definitely was a team effort that allowed us to successfully execute on our rights and remedies for that loan. As of December 31, our loan portfolio principal totaled $410 million across 30 portfolio companies with a weighted average yield to maturity of 17.2%. that's down from 18.3% at September 30, due primarily to the 50 basis point decrease in the prime rate across our floating rate portfolio and the originations Peter mentioned earlier, whose yields were modestly below our historical average.
Speaker Change: David Thank you for the efforts and why don't you take it from here.
David: Thank you Peter I appreciate the kind words.
Speaker Change: But it definitely was a team effort that allowed us to successfully execute on our rights and remedies for that loan.
Speaker Change: As of December 31, our loan portfolio principal totaled $410 million across 30 portfolio companies with a weighted average yield to maturity of 17, 2%.
Speaker Change: That's down from 18, 3% at September 30, due primarily to the 50 basis point decrease in the prime rate across our floating rate portfolio and the originations Peter mentioned earlier those yields were modestly below our historical averages.
David Kite: Gross origination during the quarter were $90.7 million of principal funding, of which $52.6 million and $38.1 million was funded to new borrowers and existing borrowers, respectively. At year-end 2023, approximately 24 percent of our loan portfolio, based on outstanding principle, was insulated from the risks of declining interest rates, which we define as comprised of fixed-rate loans and floating-rate loans with floors greater than or equal to the prevailing prime rate. As of December 31, 2024, this percentage had increased to nearly 68%. The other 32% of the portfolio that remains floating is not exposed to interest rate caps at current rate levels.
Speaker Change: Gross originations during the quarter were $90 7 million of principal funding of which $52 6 million and $38 1 million was funded to new borrowers and existing borrowers respectively.
Speaker Change: At year end 2023 approximately 24% of our loan portfolio based on outstanding principal was insulated from the rest of the declining interest rates, which we define as comprised of fixed rate loans and floating rate loans with floors greater than or equal to the prevailing prime rate.
Speaker Change: As of December 31, 2024, this percentage has increased to nearly 68%.
Speaker Change: Yeah. This is 32% of the portfolio that remains floating is not exposed to interest rate caps at current rate levels.
David Kite: Similar to our outlook last quarter, there is still uncertainty surrounding tax policy, the economy, tariffs, inflation. and the direction that the Federal Reserve will take on interest rates. We believe we have made the right decisions to limit the impact of interest rate declines and benefit should interest rates rise by adjusting the mix of floating and fixed rate loans and negotiating higher floors. Total leverage equaled 34% of book equity at year end compared with 24% at December 31, 2023. Our debt service coverage ratio on a consolidated basis for the year ended December 31, 2024, was approximately 5.5 to 1, compared with a requirement of 1.35 to 1.
Similar to our outlook last quarter, there is still uncertainty surrounding tax policy.
Speaker Change: Condoms tariffs inflation.
Speaker Change: And the direction that the federal reserve will take on interest rates.
Speaker Change: We believe we have made the right decision to limit the impact of interest rate decline and benefit should interest rates rise by adjusting the mix of floating and fixed rate loans and negotiating higher floors.
Speaker Change: Total leverage equaled 34% of book equity at year end compared with 24% at December 31 2023.
Speaker Change: Our debt service coverage ratio on a consolidated basis for the year ended December 31, 2024 was approximately 5.5 to one compared with their requirement of 1.35 to one.
David Kite: As of December 31, we had $55 million outstanding on our Senior Secured Credit Facility and had fully drawn down $50 million on our unsecured term loan. As of today, we have $38.5 million outstanding on the Senior Credit Facility and $71.5 million of available borrowing capacity.
Speaker Change: As of December 31, we had 55 million outstanding under our senior secured credit facility and had fully drawn down $50 million on our unsecured term loan.
Speaker Change: As of today, we have $38 5 million outstanding on our senior credit facility and $71.5 million of available borrowing capacity.
Phil Silverman: I'll now turn it over to Phil. Thanks, David. Our net interest income of $14.1 million for the fourth quarter represented a 2.7% decrease from $14.5 million during the third quarter. The decrease is partially attributable to the 50 basis point decrease in the prime rate during the three months ended December 31, 2024, as well as the timing of deployment of the proceeds from our unsecured notes, which closed in October 2024. For the year ended December 31st, 2024, we recognize gross interest income from non-recurring prepayment and make whole fees, exit fees, and structuring fees of $3.2 million compared to $3.5 million during the prior year ended December 31st, 2023.
Phil: I'll now turn it over to Phil.
Phil: Thanks, David.
Phil: Net interest income of $14 1 million for the fourth quarter represented a two 7% decrease from $14 5 million during the third quarter the decrease.
Phil: This was partially attributable to the 50 basis point decrease in the prime rate during the three months ended December 31, 2024, as well as the timing of deployment of the proceeds from our unsecured notes, which closed in October 2024 for.
Phil: For the year ended December 31, 2024, we recognized gross interest income from nonrecurring prepayment and make whole fees exit fees and structuring fees of $3 2 million compared to $3 5 million during the prior year ended December 31 2023.
Phil Silverman: Interest expense for the fourth quarter increased by approximately $0.4 million. The increase was driven by the interest expense on our newly closed unsecured term notes, which bear interest at a fixed rate of 9%. The fill balance of the notes was advanced at closing, and the proceeds were used to temporarily repay borrowings on our revolving loan. Accordingly, weighted average borrowings on our revolving loan decreased to $23.3 million from $76.4 million during the third quarter. This partially offset the increase in interest expense from the unsecured note.
Phil: Interest expense for the fourth quarter increased by approximately <unk> 4 million. The increase was driven by the interest expense on our newly closed unsecured term notes, which bear interest at a fixed rate of 9%.
Phil: The fill balance of the notes was advanced at closing and the proceeds were used to temporarily repay borrowings on our revolving loan.
Phil: Accordingly weighted average borrowings on a revolving loan decreased to $23 3 million from $76 4 million during the third quarter. This partially offset the increase in interest expense from the unsecured notes.
Phil Silverman: Total operating expenses, excluding management and incentive fees, and the provision for credit losses increased quarter over quarter by approximately $250,000 attributable to expense reimbursements to our managers. Our base, management, and incentive fees for fiscal year 2024 were $8.1 million compared to $8.8 million in the prior year, driven by the change in core earnings as defined in our management plan. Our CECL reserve as of December 31st, 2024, was approximately $4.3 million, compared with $4.1 million and $5.0 million as of September 30th and December 31st, 2023, respectively. On a relative size basis, our reserve for expected credit losses represents 1.1% of outstanding principal of our loans held for investment.
Phil: Total operating expenses, excluding management and incentive fees and the provision for credit losses increased quarter over quarter by approximately 250000 attributable to expense reimbursements to our manager.
Phil: Our base management and incentive fees for fiscal year, 2024 were $8 1 million compared to $8 8 million in the prior year driven by the change in core earnings as defined in our management agreement.
Phil: Our C. So reserve as of December 31, 2024 was approximately $4 3 million compared with $4 1 million and 5.0 million as of September 30th and December 31 2023, respectively.
Phil: On a relative size basis, our reserve for expected credit losses represents 1.1% of outstanding principal of our loans held for investment.
Phil Silverman: Our portfolio on a weighted average basis had real estate coverage of 1.1 times as of December 31st, compared to 1.2 times as of September 30th. Our loans are secured by various forms of other collateral in addition to real estate, which contribute to overall credit quality. On a risk rating basis, credit quality has remained strong. Approximately 91% of the portfolio at carrying value is risk rated three or better as of December 31st, 2024, compared to 89% and 88% as of September 30th and December 31st, 2023, respectively. Loan No. 9 remains the only loan in our portfolio on nonaccrual status, and it's included in risk rating for carrying a reserve for credit losses of approximately $1.2 million.
Phil: Our portfolio on a weighted average basis had real estate coverage of one one times as of December 31, compared to 1.2 times as of September 30th.
Phil: Our loans are secured by various forms of other collateral in addition to real estate, which contribute to overall credit quality on our risk rating basis credit quality has remained strong approximately 91% of the portfolio at carrying value is risk rated three or better as of December 31, 2024, compared to 89% and 88% as of September.
30th and December 31, 2023, respectively.
Low number nine remains the only loan in our portfolio on nonaccrual status and it's included in risk rating for carrying a reserve for credit losses of approximately $1 2 million.
Phil Silverman: During 2024, we raised approximately $38.4 million of net proceeds from issuances of common stock through our ATM program. The weighted average selling price, net of commissions, of $15.63 represents a premium to our December 31st book value of approximately 5.4%. Distributable earnings per weighted average share on a basic and fully diluted basis was approximately $0.47 and $0.46 for the fourth quarter, and $2.08 and $2.03 for fiscal year.
Phil: During 2024, we raised approximately $38 4 million of net proceeds from issuance of common stock through our ATM program.
Phil: The weighted average selling price net of commissions of $15.63 reps.
Phil: It represents a premium to our December 31 book value of approximately five 4%.
Phil: Distributable earnings per weighted average share on a basic and fully diluted basis was approximately 47 cents and 46 cents for the fourth quarter and $2.08 and $2.03 for fiscal year.
Phil Silverman: In January, we distributed the regular fourth quarter dividend of $0.47 per common share, as well as a special dividend of $0.18 per common share relating to undistributed taxable income for tax year 2024, both of which were declared by our board in December. For fiscal year 2024, we paid total dividends of $2.06 amounting to a payout ratio of approximately 99% of our basic distributable earnings of $2.80. Our book value was $14.83 and $14.94 per common share as of December 31, 2024 and 2023 respectively. The decrease in book value is primarily attributable to dividends paid in excess of our gap netting.
Phil: In January we distributed the regular fourth quarter dividend of 47 cents per common share as well as a special dividend of <unk> 18 per common share relating to undistributed taxable income for tax year 2024, both of which were declared by our board in December.
Phil: For fiscal year 2024, we paid total dividends of $2.06 amounting to a payout ratio of approximately 99% of our basic distributable earnings of $2.08.
Phil: Our book value was $14.83 and $14.94 per common share as of December 31, 2024, and 2023, respectively.
Phil: The decrease in book value is primarily attributable to dividends paid in excess of our GAAP net income.
Phil Silverman: On a fully diluted basis, there were approximately 21.2 million common shares outstanding as of December 31st, 2025.
Phil: On a fully diluted basis, there were approximately $21 2 million common shares outstanding as of December 31, 2024.
Phil Silverman: Lastly, I'd like to highlight the guidance we shared for 2025. Similar to last year, we are expecting to maintain a dividend payout ratio based on our basic distributable earnings per share of 90% to 100% for the year. If our taxable income requires additional distributions in excess of the regular quarterly dividend in order to meet our taxable income distribution requirement, we would expect to meet that through a special distribution in Q4 2025.
Phil: Lastly, I'd like to highlight the guidance we shared for 2025 similar to last year, we're expecting to maintain a dividend payout ratio based on our basic distributable earnings per share of 90% to 100% for the year.
Phil: If our taxable income requires additional distributions in excess of the regular quarterly dividend in order to meet our taxable income distribution requirement, we would expect to meet that through a special distribution in Q4 of 2025.
Operator: Operator, we're now ready to take questions. Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2.
Operator, we're now ready to take questions.
Phil: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Phil: At any time your question has been addressed and we would like to withdraw your question. Please press Star then two.
Operator: At this time, we will pause momentarily to assemble our roster.
Phil: At this time, we will pause momentarily to assemble our roster.
Crispin Love: And the first question will come from Crispin Love with Piper Sandler. Please go ahead. Thank you and good morning, everyone. First, can you talk about demand for loans and leverage expectations? You had a good amount of activity in the fourth quarter on the origination side. You added the unsecured term loan and leverage increase, but still remains pretty low.
Speaker Change: And the first question will come from Christian Love with Piper Sandler. Please go ahead.
Christian Love: Thank you and good morning, everyone first.
Christian Love: First can you talk about demand for loans and leverage expectations, you had a good amount of activity in the fourth quarter.
Origination side, you added the unsecured term loan and leverage on increased but still remains pretty low, but given the $500 million pipeline or nearly $500 million type of pipeline would you expect to take leverage up further in the near term to fund loans or utilize the ATM and just just how's demand overall from the borrowing lascar.
Crispin Love: But given the $500 million pipeline or nearly $500 million pipeline, would you expect to take leverage up further in the near term to fund loans or utilize the ATM? And just how is demand overall from the I'd say on market demand, in a compressed equity valuation environment, the profile of demand has changed. but from the type of projects and the type of initiatives that were being funded. four years ago, but I think that's been offset. The change of that profile has been more than offset by just the maturation of the industry in this year's much larger size of the industry today than it was four years ago.
Christian Love: Yeah.
Christian Love: I'd say on that.
Christian Love: Market demand in.
Christian Love: In a in a compressed equity in a compressed the equity valuation environment the profile of demand has changed.
Christian Love: But from from the type of projects and the types of initiatives that are being funded.
Christian Love: Four years ago.
Christian Love: But I think that's been offset the change if that profile is but not more than offset by just the maturation of the industry and this year's much larger size of the industry today.
Christian Love: Today than there was then it was four years ago, and we don't expect to.
Crispin Love: We don't expect to. increased leverage in the near term beyond that which is already approved under our Senior Secured Facility and its accordion feature. Okay, great. Thank you for that.
Christian Love: Increased leverage.
Christian Love: Near term beyond that which is already approved under our senior secured facility.
Christian Love: And its and its accordion feature.
Christian Love: Yeah.
Speaker Change: Okay, great. Thank you for that and then just an update on credit quality.
Crispin Love: And then just an update on credit quality, how it's performing, your expectations. You mentioned you have just the one loan on non-accrual, but environment here does remain uncertain. So curious on your thoughts on credit and health of your borrowers currently, and then just digging a little deeper into loan number nine over the near term. What's the goal there? Is it a sale? And just curious what you're looking to do with that asset. The overall credit quality hasn't changed significantly quarter over quarter, and I think that's reflected in the risk rating figures, where you certainly have movement between our buckets of risk rating figures every quarter, as one would expect.
Speaker Change: It's performing your expectations you mentioned, you're you have just the one loan on non accrual, but environment does remain.
Speaker Change: I'm sorry, so curious on your thoughts on credit and health of your borrowers currently and then just digging a little deeper into low number nine over the near term what what's the goal. There is is it a sale and just curious what you are looking to do with that asset.
Speaker Change: Hum.
Speaker Change: The overall credit quality is it hasn't changed significantly quarter over quarter and I think that's reflected in the risk rating figures.
Speaker Change: Where you certainly have movement between our buckets of risk rating figures every quarter as one would expect.
Crispin Love: Overall not a significant change in posture.
Overall, not a significant change in in in in posture.
David Kite: I'll let David speak to the loan number nine and progress there. Sure. So, while we have taken operational control of the assets and the operations there, there had been a cease and desist order on the dispensaries and the cultivation. We're currently working diligently to remedy all of the deficiencies and remove the cease and desist order, which we expect to be done soon.
Speaker Change: I'll, let I'll, let David speak to the low number nine am.
Speaker Change: And progress there.
Speaker Change: Sure.
Speaker Change: So while we have taken operational control of the assets and the operations. There there had been a cease and desist order on the dispensaries and a cultivation. We're currently working diligently to.
Remedy all of the deficiencies and removed the cease and desist order, which we expect to be done soon we'll get the dispensaries are up and operational as well as the cultivation.
David Kite: We'll get the dispensaries up and operational as well as the cultivation, creating value for the assets, and then at that point we'll decide what to do. Okay, great.
Speaker Change: Creating value for the assets and then at that point, we'll decide what to do.
Speaker Change: Okay, Great and then just just one last question from me can you just share your latest thoughts on schedule, adding your views. There I believe you said last quarter you would expect it to occur in 2025, but just curious on any updates. Thank you.
Crispin Love: And then just one last question from me.
Crispin Love: Can you share your latest thoughts on scheduling, your views there? I believe you said last quarter you would expect it to occur in 2025, but just curious on any updates. I think the whole industry is looking for greater data points out of the Trump administration on where their posture leans. and unfortunately every day that goes by without those data points and those indications should push back one's expectations for when real progress occurs. So we our posture is to invest as always to invest assuming a catalyst such as rescheduling never occurs. and that's going to continue to be our posture until there's greater certainty otherwise, much greater certainty otherwise.
Speaker Change: I think we're I think that.
Speaker Change: The whole industry is looking for.
Speaker Change: Greater data points out of the Trump administration on where their posture lanes.
And unfortunately everyday that goes by without those data points in those indications should push back once expectations for when real progress occurs and so we our posture is to invest is always to invest assuming catalysts such as rescheduling never occurs.
Speaker Change: And that's going to continue to be our posture until there is greater certainty otherwise much greater certainty otherwise.
Crispin Love: Okay, well, thank you all for taking my questions. I appreciate it.
Speaker Change: Well. Thank you all for taking my questions appreciate it.
Pablo Schoenick: The next question will come from Pablo Schoenick with Schoenick & Associates. Please go ahead. Thank you. Good morning, everyone. Look, my question regarding industry context has to do with the way most companies are dealing with 280E, right? As you know, they've taken a more aggressive stance. They are letting the long-term liabilities or uncertain tax benefits increase on the balance sheet. But on the other hand, they are provisioning as normal corporations, right? So their cash flows are improving, and they seem to be in much better shape in that sense. I'm trying to think from your perspective, yes, they have more cash, and they are probably able to serve their debts better.
Pablo: The next question will come from Pablo <unk> with China and Associates. Please go ahead.
Speaker Change: Thank you and good morning, everyone knows about my question with regard to the industry context has to do with the way most companies that are dealing with 280 E. Right. As you know they've taken a more aggressive stance theyre, leading the long term liabilities without a certain tax benefits increase on the balance sheet.
But on the other time.
Speaker Change: What are we assuming that's normal corporations right. So they have cash flows are improving and they seem to be a much better shape in that sense.
Speaker Change: I'm trying to think from your perspective, you have to have more gosh, probably able to somebody that's better but on the other kind of hobbies, increasing did we tell you race right. So how do you think about that is good from your perspective or negative or or or is it just a neutral factor. Thank you.
Pablo Schoenick: But on the other hand, they have this increasing debt with the IRS, right? So how do you think about that? Is this good from your perspective or negative, or it's just a neutral factor?
Pablo Schoenick: Thank you. I think it's an unavoidable factor we consider. Unpaid tax liabilities to be a form of indebtedness, and it's a strong factor in our underwriting process and how we view the leverage profile of our borrowers. We factored in and controlled this risk by aiming to create limitations on the amount of unpaid tax liabilities that may be accrued on the balance sheet over the course of our loan. And we do that through requirements that taxes be paid and or. through leverage covenants or FCCR covenants that factor in that tax liability. When we try to think in terms of the shape of the industry versus the shape of the companies, I could make the argument that, yes, there's more deflation out there, there's revenue per store erosion, particularly in some states like Illinois, because there's more licenses being issued.
Speaker Change: I think it's it's it's an unavoidable factor that we consider.
Speaker Change: Unpaid tax liabilities to be a form of indebtedness and its a strong factor in our underwriting process.
And how we view the leverage profile of our borrowers.
We factored in and control this risk by AME.
Speaker Change: Aiming to create limitations on the amount of.
Speaker Change: Unpaid tax liabilities that may be accrued on the balance sheet over the course of our loan.
Speaker Change: And we do that through requirements the taxes to be paid and what <unk>.
Speaker Change: Through <unk> leverage.
Speaker Change: Leverage covenants or FCC, our covenants that sector in that tax liability.
Speaker Change: Right. Okay. That's helpful. Thank you and then just a follow up.
Speaker Change: When we take the thing that's really the shape of the industry you know versus the shape of that companies like what made the argument that yes, there's more deflation out there the revenue sort of erosion, particularly in some states like Illinois, because there's more licenses being issued and those are both negative for the industry on the other hand, you know accompany.
Pablo Schoenick: Those are both negative for the industry. On the other hand, the companies seem to be focusing more on cash flow, on cutting costs, improving profitability. I'm just trying to think from your perspective, when you put all that together, is the industry you're looking at, the borrowers you're looking at, on average, in better shape or worse shape than before?
Speaker Change: These are seem to be focusing more on cash flow on cutting cost improving profitability I'm just trying to think from your perspective. When you put all that together you know it is the industry you're looking at the borrowers youre looking at on average in better shape or worst shape them before.
Pablo Schoenick: It's a challenging question because You know, we don't have to invest in, we don't have to invest in quote unquote the industry as a whole, we invest in individual operators. and we're certainly seeing the ability to find strong operators with strong growth projections that are still under levered. and so on. so long as we can maintain a sufficient pipeline to deploy our capital in very accretive transactions. what's happening in one state or another state. doesn't necessarily impact us if we're still finding really attractive creative opportunities. So it's a difficult question to answer in a general manner.
Speaker Change: You have to it's a challenging question because.
Speaker Change: Yeah, we we don't have to invest in we don't have to invest in quote unquote the industry as a whole we invest in individual operators.
Speaker Change: And we're certainly seeing the ability to find strong operators with strong growth projections that are still under levered.
Speaker Change: And and so.
Speaker Change: So long as we can maintain a sufficient pipeline to.
Speaker Change: To deploy our capital in.
Speaker Change: In accretive very accretive transactions.
Speaker Change: What's.
Speaker Change: Turning in one state or another state.
It doesn't necessarily impact us if we if we're if we're still finding really attractive accretive opportunities.
Speaker Change: So it's it is difficult question to answer in a general manner.
Pablo Schoenick: All right, thank you. And just two more quickly. So you have 67 million left of liquidity. I understand you don't give guidance, but should we assume that that would be probably fully utilized in 2025? in terms of deployment. We aim to be fully deployed with sufficient liquidity buffer. All right.
Speaker Change: Alright. Thank you I'm just just two more quickly.
Speaker Change: So you have $67 million left will agree with you I understand you don't give guidance, but should we assume that that would be probably a fully utilized in 2025.
Speaker Change: In terms of deployment.
Speaker Change: We aim to be fully deployed with with a sufficient liquidity buffer.
Speaker Change: Right.
Pablo Schoenick: And last one, if you can just provide an update on New York, I mean, that's been a good program for you, but, and there's obviously more stores opening, so I'm sure there's more demand for that facility, but if you can provide any color on that. Thank you.
Speaker Change: Just wonder if you can just provide an update on New York I mean, that's been a good program for you but.
Speaker Change: That's what gives me more stores opening so I'm sure there's more demand for that facility, but if you can provide any color on that thank you that's it.
Pablo Schoenick: That's it. We've been extremely encouraged by progress that New York regulators and New York operators have made in the last year. of opening stores. of Cracking Down on Illegal Operators. and processors and cultivators. creating stronger portfolios of products that consumers want that combats the black market. And this falls back on what we think are some of the key... factors that lead to a successful market and allow a legal market to outcompete an illegal market, and that's access to dispensaries in close proximity. That's a strong product portfolio of products that are better than what's available in the illicit market and available more consistently.
Speaker Change: We've been extremely encouraged by progress that New York regulators and New York operators have made in the last year of.
Speaker Change:
Speaker Change: Opening stores.
Speaker Change: Hi, cracking down on illegal operators.
Speaker Change: And processors and cultivators.
Speaker Change: Creating a portfolio, creating stronger portfolios of products that consumers want.
They've come back to the black market.
Speaker Change: And this falls back on what we think are some of the key the key.
Speaker Change: Factors that lead to a successful market and and allow the illegal market to out compete in illegal market and that's access to dispensaries in close proximity.
Speaker Change: Such a strong product portfolio.
Speaker Change: Products that are better than what's available in the illicit market and available more consistently.
Speaker Change: And.
Pablo Schoenick: and Crackdowns on Illegal Operators, and I think that's the least important of the three. We've been extremely encouraged.
Speaker Change: And crack down on illegal operators and I think that's the least important that's a three in it.
Speaker Change: We've been extremely encouraged.
Pablo Schoenick: That's great. Thank you.
Speaker Change: That's great. Thank you.
Chris Muller: The next question will come from Chris Muller with Citizens Capital Markets. Please go ahead. Hey, guys. Thanks for taking the questions. I'm on for Aaron today.
Speaker Change: The next question will come from Chris Muller with citizens capital markets. Please go ahead.
Speaker Change: Hey, guys. Thanks for taking my question I'm on for Erinn today, So I guess picking up on a prior question.
Chris Muller: So, I guess, picking up on a prior question, the chances of Schedule III or other type of reform looking bleak in the near term, would you say that your borrowers are generally able to operate in the status quo? And does any type of reform factor into your underwriting? Yes to the first question. And to the second question, the answer is no. We underwrite assuming that 280... Rescheduling does not occur because it's simply difficult to project, and that's been the case of our approach to investing in this industry from the get-go, that we underwrite assuming that significant state-based market reforms or federal reforms do not occur, and when they do occur, that's a positive catalyst for our operators and for ourselves, and we think that's the appropriate stance to take when making responsible debt investments.
Speaker Change: The chances of schedule three or other type of fall I'm looking bleak in the near term would you say that your borrowers are generally able to operate in the status quo and does any type of a form factor into your underwriting.
Speaker Change: AH Yes, the first question and the second question, it's the Answer's no Oh, we underwrite assuming that two eight debt that.
Speaker Change: Rescheduling does not occur because it simply difficult to predict Walt to project and that's been the case of our approach to investing in this industry from the get go that we underwrite assuming that's significant state based market reforms or federal firms do not occur and when they do occur that's a positive catalyst for our operators and for ourselves and we think that's the appropriate.
Speaker Change: Stance to take when making responsible investments.
Chris Muller: And that's been the absolutely correct stance the last couple of years.
Speaker Change: And that's been the absolutely correct stay on for the last couple of years. So I applaud you guys on that I guess my other question is on the dividend.
Chris Muller: So I applaud you guys on that.
Chris Muller: I guess my other question is on the dividend. So can you talk about how the board thinks about increasing the base dividend versus paying the special? This is the third year in a row that you guys have paid the special. So I'm just curious on the thought process there. and we want. We want our investors to view this to be the regular dividend. as having significant cushion to performance. Got it. Very helpful. Thanks for taking the question.
Speaker Change: Can you talk about how the board thinks about increasing the base dividend versus paying the special I. This is the third year in a row that you guys have paid the special so I'm just curious on the thought process there.
Speaker Change: And we want.
Speaker Change: We want our investors to view.
Speaker Change: To view this to be the regular dividend.
Speaker Change: As having significant cushion to performance and we.
Speaker Change: We evaluate that as we evaluate our dish dividends decisions every quarter and have a discussion surrounding it.
Speaker Change: Hum, but.
Speaker Change: We ultimately want to want our investors to view the regular dividend.
Speaker Change: A strong margin of safety.
Speaker Change: Got it very helpful. Thanks for taking my questions.
Aaron Gray: And our next question comes from Aaron Gray with Alliance Global Partners.
Speaker Change: And our next question comes from Aaron Grey with Alliance Global Partners. Please go ahead.
Aaron Gray: Please go ahead. Hi, good morning. Thank you for the questions. We just want to circle back on the pipeline. I believe you alluded to how the profile has changed a bit, so close to 500. Just wanted to talk a little bit around that. So is it maybe a little bit less now in terms of expansion of existing? You guys have in the deck a little bit more of a reference to M&A. So can you talk about maybe how that profile has changed? And is it still primarily focused around single state operators, potentially looking more at multi-state operators?
Speaker Change: Okay.
Speaker Change: Hi, good morning, Thanks for the questions.
Speaker Change: Just wanted to circle back on the pipeline.
Speaker Change: I believe you alluded to how the profile has changed a bit. So you know close to 500, just wanted to talk a little bit you know around that so is it maybe a little bit less now in terms of expansion of existing you guys have in the deck.
Speaker Change: I live in more of a reference to M&A. So can you talk about maybe how that profile has changed and is it still primarily focused around single state operators essentially looking what multi state operators me color in terms of some of the commentary you provided there would be helpful. Thank you.
Aaron Gray: So just any color in terms of some of that commentary provided there would be helpful.
Aaron Gray: Thank you. I think we are leveraging. Our Originations team, that we think is the largest in the industry, that focuses on building relationships in the markets that we're most excited about. and building those relationships over the time span of months and years, such that when that operator is pursuing a growth initiative and has a capital need, we're their first call. and I think particularly in the fourth quarter that's our origination system driven by idiosyncratic growth projects, idiosyncratic growth initiatives, M&A opportunities, individual projects that's difficult to categorize within a specific market trend or a specific market need with the exception perhaps of Ohio who's transitioned to adult use and execution of sensory construction we continue to support.
Speaker Change: Mhm.
Speaker Change: Yeah, I think where we are.
Speaker Change: We're leveraging.
Speaker Change: All right.
Speaker Change: Our originations team and we think it's the largest in the industry.
Speaker Change: That focuses on building relationships in the markets that we're most attracted the most excited about.
Speaker Change: And building those relationships over the time span of months and years, such that when that operators pursuing our growth initiatives and has a capital need where their first call.
Speaker Change: And particularly in the fourth quarter. That's that's our originations has been driven by idiosyncratic.
Speaker Change: Both projects idiosyncratic growth initiatives M&A our M&A.
Speaker Change: M&A opportunities.
Speaker Change: Hum.
Speaker Change: Individual projects, it's I think it's difficult to categorize within a specific market trend or a specific market market need.
Speaker Change: With the exception perhaps of Ohio.
Speaker Change: Whose transition to adult use and and.
Speaker Change: Execution of CRE construction, we continue to support.
Aaron Gray: Okay, great. Thank you for that, Carlo, there.
Speaker Change: Okay, great. Thank you for that color there and then a second one for me.
Aaron Gray: And then a second one for me, obviously, just in terms of a broader industry dynamic. A lot of people are talking about the debt maturities coming in 2026. So just want to have, you know, more broadly to that potentially present any opportunities, you know, for you to come in as one of the options in some type of, you know, refinancing and just more broadly how you're thinking about. Some of the loans in your portfolio that could be coming to maturity this year.
Speaker Change: Just in terms of broader industry dynamics.
Speaker Change: A lot of people are talking about the debt maturities coming in 'twenty six so I just want to have more broadly than that.
Speaker Change: Present any opportunities for you to come in as one of the options.
Speaker Change: And some type of refinancing and just more broadly how you're thinking about.
Speaker Change: Some of the loans in your portfolio that could be coming to maturity this year.
Aaron Gray: Thank you. We aim to be the lender of choice and to add value to our existing borrowers and to borrowers that we'd like to work with in the future, so that when maturities arise, we can be the relationship of choice and be a lead in those transactions. And so we would love to support the industry as those maturities come due. That being said, I think the quote unquote maturity law is described. course. and we would love to be a part of that.
Speaker Change: Hum.
Speaker Change: We aim to be the lender of choice and to add value to our existing borrowers and to borrowers that we'd like to work with in the future. So that when maturities arise we can be the relationship of choice and be it be it a lead in those in those transactions and so we would love to support the <unk>.
Speaker Change: Street as those maturities come due.
Speaker Change: That being said I think the I mean the.
Speaker Change: Terry was describing with.
Speaker Change: And catastrophic terms that it doesn't really merit I think that.
Speaker Change: Our maturity doesn't mean that the existing lenders necessarily don't want to be a part of a new loan facility there.
Speaker Change: There could be rethought re pricings, there could be changes with loan terms.
Speaker Change: But I don't but that doesn't necessarily mean that capital is leading leaving the industry.
Speaker Change: And has to be replaced by someone and so I do think the market will work through much of these much of these loan maturities in normal course.
Speaker Change: And we would love to be a part of that.
Aaron Gray: That's helpful color there.
That's helpful color I'll jump back into queue. Thank you.
Aaron Gray: I'll jump back to the queue. Thank you.
Operator: With no further questions, this concludes our question and answer session.
Speaker Change: With no further questions. This concludes our question and answer session I would like to turn the conference back over to Peter sack for any closing remarks.
Peter Sack: I would like to turn the conference back over to Peter Sack for any closing remarks. Thank you for taking the time, and to our investors, thank you for the support. We look forward to reporting on Q1 shortly.
Peter Sack: Thank you for taking the time and to our investors. Thank you for the support and look forward to reporting on Q1 shortly.
Operator: The conference has now concluded. Thank you for attending today's presentation.
Peter Sack: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: You may now disconnect.
Peter Sack: Yeah.
Peter Sack: Yeah.
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Peter Sack:
Peter Sack: Yeah.
Peter Sack: [music].