Q3 2025 Chicago Atlantic Real Estate Finance Inc Earnings Call
Good day and welcome to the Chicago. Atlantic real estate. Finance Inc, third quarter, 2025 earnings call
Today, all participants will be in a listen-only mode. Should you need assistance? During today's call, please signal for a conference specialist. By pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask a question. You may press star then 1 on your telephone keypad 2, withdraw your question, please press star, then 2. Please note that today's event is being recorded.
I would now like to turn the conference over to trip Sullivan of investor relations. Please go ahead.
Thank you. 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 Sac code, chief executive officer, David kite, Chief Operating Officer, and Phil Silverman and Chief Financial Officer.
Our results for release this morning in our earnings press release, which can be found on the vest relations section of our website, along with our supplemental filed with the SEC.
A live audio webcast for this. Call is being made available today for those who listen 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 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 represents covert Atlantic's judgment as of the date of this conference call and our subject to risk and uncertainties that can cause actual results to different materially from our current expectations.
And the company's filings with the SEC.
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 filing for the SEC. I'll now turn the call over to Peter Sac. Please go ahead.
Thank you Tripp. Good morning, everyone.
This quarter against the backdrop of a volatile private credit environment. We demonstrate another consistent, period of execution and performance,
The benefits of our consistent approach and discipline focus on principal protection, yielded, a strong quarter, and this quarter's gross. Originations have us on Pace to hit our goal of net growth in the loan portfolio.
Challenges in private credit markets have created Newfound concern in the investor community.
Declining interest rates impacted lenders with floating rate portfolios.
The syndicated loan Market experienced high-profile fairs of fraud.
And excess capital in the market underlies, perceived lack of underwriting standards.
I suspect that these broader concerns have caused us to trade at a sizable discount to our book value. Rather than the premium we long enjoyed since our IPO nearly 4 years ago.
Noting this disconnect from the reality of our portfolio, our management team and board of directors. Recently, purchased shares on the open market.
Bringing our Collective ownership of the common stock to nearly 1.8 million shares on a fully diluted basis.
There are several reasons why we're so confident with what we've created at Chicago. Atlantic
So, first is that we have a canvas pipeline that currently stands at approximately 441 million.
We believe that this pipeline of opportunities is unrivaled in the industry and is Diversified across
Growth investments maturities in the market m&a. Activity related to operational and balance sheet restructurings and potential ESOP sale transactions.
Secondly, we have the most robust platform in capital to meet the growth of the industry, we deploy Capital with consumer and product focused operators in limited licensed jurisdictions at low, leverage profiles to support, fundamentally sound growth initiatives.
I can't think of a better example of our commitment to the industry than Chicago, Atlantic funding. This quarter of what we believe to be the largest real estate back revolving credit facility Among Us operators, in the history of the industry.
75 million 3-year secured revolver with Verona.
Lastly, we constructed a portfolio with differentiated and low levered risk, return profile. That is insulated from both cannabis equity and interest rate volatility.
As David will break down for you in a moment, we have structured our floating loans with interest rate floors. Only approximately 14% of our total loan portfolio is exposed to any further rate declines based on today's 7% prime rate.
that discipline provides the meaningful measure of protection to the portfolio.
We are focused on outperforming and delivering the kind of recurrence that we all expect to shareholders.
Confidence in the strategy is important. And hopefully, I provided some insight into why we are enthusiastic and why we as a management team, executed share repurchases in recent weeks.
But execution on our plan matters even more and I look forward to reporting on our continued, progress over the balance of the year.
David, why don't you take it from here?
Thank you Peter as of September 30th, our loan portfolio, principal totaled, approximately 400 million Acres, 26, portfolio companies with a weighted, average yield to maturity of 16.5% compared with 16.8% for the second quarter.
Gross originations during the quarter were 39.5 million of principal funding of, which 11 million was Advanced to a new borrower. And 20 million was related to the new verono credit facility. That Peter mentioned earlier. These were offset by unscheduled principal repayments.
Of 62.7 million that we disclosed last quarter.
As of September 30, 2025, our portfolio consisted of 36.7% fixed-rate loans and 63.3% floating-rate loans.
The floating rate portion is primarily benchmarked to the prime rate Following last week's. 25 basis point rate reduction. Bringing the prime rate to 7% only 14% of our portfolio remains exposed to further rate decline.
The remaining 86% is either fixed rate or protected by primate floors of 7% or higher. Importantly, our floating rate loans are not exposed to interest rate caps.
This structural Advantage combined with our rate floor protections.
Positions are portfolio favorably, compared to most mortgage rates.
Should the Federal Reserve Implement, another adjustment to the FED funds, Target in December. We are well insulated against the adverse effects of declining interest rates.
% of book Equity at September 30 compared with 39% as of June 3 0.
As of September 3004 million outstanding on our senior secured revolving credit facility and 49.3 million outstanding on our unsecured Term Loan.
As of today, we have approximately 69.1 million available on the senior credit facility and total liquidity. Net of estimated liabilities of approximately 63 million
I'll now turn it over to Phil.
Thanks David, our net interest income of 13.7 million for the third quarter represented. A 5.1% decrease from 14.4 million during the second quarter of 2025.
The decrease was primarily attributable to non-recurring. Prepayment, may call exit and structuring fees, which amounted to 1.1 million for Q3 2025 compared with 1.5 million in Q2 2025.
Additionally, approximately 0.1 million of the decrease in net, interest income was attributed to the impact of the 2 5.
Late in September on our floating rate, portfolio and interest expense on our revolving credit facility.
Total interest expense including non-cash amortization of financing costs. For the third quarter was approximately 1.6 million down from 2.1 million in the second quarter.
The weighted average borrowings on our revolving loan, decreased 14, million compared to 42.3 million during the second quarter.
Our Cecil reserve on our loans held for investment as of September 30th, 2025 was approximately 5 million compared with 4.4 million as of June 30th.
On a relative size basis. Our reserved for expected credit losses represents approximately 1.25% of our outstanding principal of our loans held for investment.
On a weighted average basis, our portfolio maintains strong real estate, coverage of 1.2 times.
Our loans are secured by various forms of other collateral, and addition to real estate including uccc 1 all asset liens on our borrower credit parties.
These other collateral types. Contribute to overall credit quality and lower loan to value ratios.
Our portfolio has a loan to Enterprise Value ratio on a weighted average basis of 43.5% as of September 30th calculated as senior. And deadness of the borrower divided by the fair value of total collateral to refi.
Distributable earnings per weighted average share on a basic and fully diluted basis for approximately 50 cents and 49 cents for the third quarter, a modest decrease from 52 cents and 51 cents respectively during the second quarter.
And in October, we distributed the third quarter dividend of 47 cents per common share declared by our board in September.
Our book value per common share outstanding was 14.71 as of September 30th 2025 and there are approximately 21.5 million common shares outstanding on a fully diluted basis as of such date.
We continue to expect to maintain a dividend payout ratio based on our basic distributable, earnings per share of 90 to 100% for the 2025 tax year.
If our taxable income requires additional distributions more than the regular quarter dividend to meet our taxable income requirements, we expect to meet that requirement with a special dividend in the fourth quarter.
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 telephone keypad,
if you are using a speaker-phone please pick up your handset before pressing the keys 2 withdraw your question please press star then 2
At this time, we will take today's first question from Aaron grey with Alliance. Global Partners, please proceed.
Hi. Good morning and thank you very much for the questions here.
First question for me, just want to talk about uh the pipeline a bit. So 4:15. I know that's down a little bit from prior quarters. Just wanted to talk about where there's some large potential originations that exited the pipeline. And I know prior quarter, you had talked about esops and potential opportunity there, so want to see if you still see those as appealing and within the pipeline opportunities. Thank you.
Um, yes, uh, esops continue to form a, a large part of the pipeline.
Our pipeline tends to refresh.
Um, every quarter or so as deals that as deals, either disappear.
Uh, get turned down by us or get funded.
Changes quarter over quarter. Ordinary turn.
The same question for me, just in terms of some of the loans that are maturing before the year end any color, you can talk about in terms of how those conversations are panning out. I know you're still, you know, targeting, you know, net portfolio, growth for the year. So so any color on those would be greatly appreciated.
Mhm. Um,
We are in the midst of negotiating.
Uh, the terms under, which we may extend to maintain the business and maintain the position.
um, and I expect that the vast majority of those loans that are maturing uh before the end of the year, we will retain in in some form or another
Okay, that's great to hear last question for me, um you know, no direct implications for for new cannabis legalization in the election today. But some indirect particularly for Virginia, you know, if there is a new government that comes in, that's more Pro cannabis, particularly looking at that State, I know new States coming online, can be, you know, a good opportunity for you guys. So have you, how would you guys certainly? Look at a state like Virginia in terms of the opportunities there uh and how the regulatory landscape exists today and could exist Tomorrow based on past legislation for retail setup. Thank you.
Mhm, you know, we think Virginia is a very attractive Medical Market.
Due to its uh, very controlled, licensure structure. And and the way in which the regular has set up the geographic orientation of license holders,
And we think it'll be an extremely attractive recreational Market as well. Uh, so as a as, as those discussions progress, we'll be looking to extend our relationships in the state and deploy capital.
Okay, great. Thanks for the call, there. I'll go ahead and jump in to the queue.
Thanks Aaron.
Please proceed.
And congrats on another solid quarter here. Um, so you guys have done a really great job, uh, underwriting a pretty challenging part of the market here. So, can you guys talk about your approach to underwriting and what's driving that success is it more? The type of borrowers, you focus on or the geographies or maybe a combination of those
Um, yeah, I think you hit on some of the key points. The first, I think, the foundation of our underwriting is a analysis of each of the markets.
Each of the market, each of the markets of the 40 states that are legalized medical or recreational cannabis. And that underwrite begins before we've deployed a single dollar into that market. And it's not just a focus on this on, on the state. It's also a. It's also a deeper dive into each piece of the supply chain within that market.
We focus on limited licensed jurisdictions because we find that in these spaces,
uh, the regulatory mode creates greater predictability of wholesale prices margins and the competitive environment.
Within that framework, where we focus on operators with a diverse source of earning streams, whether that's earnings coming from a diverse portfolio, of retail operations retail and vertical integration or retail vertical integration spread across multiple limited licensed States.
Guy. That's all very helpful. And I guess and then lastly and in addition to Technologies in addition to, um, in addition to
Real estate collateral. Uh, we're focused on lending to operators at conservative leverage levels of under 2 times, AA.
And uh, the combination of all of these factors, frankly allows for diversity of repayment, uh, diversity of potential growth opportunities.
and then while we're in in structuring loans, I think it's important that in, in the majority of our loans, not only is our capital
Going towards growth initiatives that drive IBA Improvement.
And the majority of our loans also include amortization. And so the aim is that the aim is that are um
our loans will be less risky by their maturity date by virtue of the growth and loan. Pay down than they were at the outset and that we can then continue to support those clients in the next phase of their growth, whether that's acquisitions
expansion of cultivation, expansion of retail.
And it's it's really just consistency with what we think are pretty simple fundamentals, approach to this industry, a focus on credit quality and a focus on principal protection. That's allowed us to, uh, maintain the track record through a lot of volatility in equity, valuations, and in, and in the marketplaces, the, the, the operating marketplaces in each of these states.
If we do end up getting some type of a form, whether it's this year next year. Uh, whenever that timing is what type of normalized LTV would you expect uh to see in the portfolio?
Well, it's a difficult, it's a difficult. It's a difficult question. It's difficult. Question to answer, uh, because there's a few variables. I would expect that in the case, if the reform that we're discussing about is rescheduling.
I haven't seen examples of a significant amount of new lenders entering the market.
In the event of rescheduling.
And so I think there's there's opportunity to increase increase our loan sizes. In many cases, with many of our borrowers by nature of the improved cash flow. Dynamics of operators and are rescheduling environment because of the lack of the impact of 288 taxes.
So that's 1 reason why, you might see loan, balances, go up in a post rescheduling world because the fundamental cash flow. Profile of the industry and of individual operators, this improved significantly
But also, on the other hand, I would expect there to be a lot more Equity interest.
In the sector as a result of rescheduling. And so I'd expect to see the denominator, the v in that ratio, increase significantly, starting with the, starting with public operators and public cannabis valuations. Uh, and so the combination of those 2 is difficult. It's difficult to parse. Exactly what would be the what would be the change in? LTV?
Got it. There's a lot of unknowns out there still, so that's very fair.
yeah, but you know, I would note that
We we focus in our underwriting on the ability of a cannabis operator to service its indebtedness and to pay back that indebtedness.
And that was our focus when cannabis companies were valued in the High Teens.
Easy to IA.
And that's our Focus today. When cannabis companies are valued in single digit Ava,
And so it I think it's an end. And and so that's why the understanding of the cash flow and diversity of cash flows. And the collateral is really fundamental to us and more fundamental to us than and ephemeral potentially ephemeral market cap potentially ephemeral um,
Uh, license value.
Got it. It's all very, very helpful and I guess uh just 1 clarifying 1 real quick if I could. Um did I hear you guys correctly? Say that 86% of the portfolio has uh active floors in place as we sit today.
That's a combination of floors and fixed rate.
Got it, got it. Got it. All right, that was all the questions I had. Thanks very much.
Thank you, Chris.
And the next question comes from Pablo, zanic, with zuanic and Associate, please proceed.
Thank you and good morning everyone. Uh, Peter, I realized that every company is different. Uh, but for example, you know, uh, IPR this morning, announced an investment outside cannabis, acama transforming into a BBC investing outside cannabis. Uh, she got Atlantic BDC also is investing outside cannabis, is that something that she got Atlantic real estate Finance would also consider given the environment in cannabis.
We have on occasion invested outside of cannabis.
Uh but we find that the risk reward profile for Real Estate back loans in the Cannabis space is simply much more attractive than the risk reward in in most cases than the risk reward profile of real estate back loans in, uh uh, in non-cancerous, real estate opportunities. And it's got that's what's driving. That's what's driving.
Our focus and the and the overwhelming sight overwhelming allocation of the portfolio to cannabis opportunities in in in refi.
Um, but to the extent that changes to the extent that we find,
Attractive. Uh, real estate backed opportunities.
Um, uh, we will certainly offer them to refi and may deploy them in refi.
Um but you know, Chicago, Atlantic was founded.
And that's part of our DNA and that focus on cannabis and our Fidelity to the sector is not going to change.
And it I think it's 1 of the reasons why um why we've why we've persisted in this industry and continue to deploy. In this industry, as the equity markets, have experienced significant volatility as other lenders, have exited the space.
Can drive outsized returns and really differentiated returns for our investors and that we can provide a better product better support, better relationship.
With our clients with our Borrowers.
And and we find that that press that consistent presence in the market, that consistent support to our borrowers, leads to better, relationships leads, to more longevity of relationships and leads to a greater ability for us to build relationships with the next top. Operator, that emerges from the ecosystem
That's a good call. Thank you. Just moving on in terms of uh 280e. You explained in the prior question that your main focus is on a company's ability to service debt, right? So how do you think about the uncertain tax provision that most msos have right? The majority of well most msos not the majority like pretty much all of them except 1 are paying their taxes declaring taxes as a normal Corporation and and assuming to add does not apply and based on lawyers and Auditors recommendations, they are an advice. They are putting an item that's called on second and certain tax Provisions or benefits as a long-term liability, right? Um, this is we we we will see if it's ever due and uh, it doesn't have a maturity date. But how do you factor that in your ability to service that?
We consider it as another form of Leverage.
And so we aim to create covenants that limit the ability of our borrowers to incur, um, to incur uncertain, tax liabilities above a certain amount and that amount is set by our comfort of the total leverage profile of the company.
No, that's good. Thank you.
look um I know we normally do not talk about specific borrowers but you know, you mentioned Verano um in in your prepared remarks
Uh, I'm trying to understand here, the Dynamics, in the case of Verano Chicago Atlantic, I believe as a group not just a refi has about 300 million dollar facility 292 million book in uh Verano do next year, right? And now you have issue with this revolver for 75 million 3 year revolver. I'm trying to understand the Dynamics, in terms of why not? Just restructure the whole thing. And, uh, you know, just have to be structured at 300 million uh, loan that was due next year or given that we don't know what's going to happen in reform. You might have just, I'm just trying to understand why not do that, uh, as opposed to, uh, you know, issuing a free year, uh short-term uh uh revolver here.
Mhm. Um we have a we have incredible respect for the team at revolver at verono.
And what the team at verono has accomplished, um, what they're executing on today and and their growth prospects.
And um, and we think their footprint their asset base and their mindset When approaching the industry. Um, is something that we that um
Um, that we that we think is really unique within the space. Um, and and we really value the partnership
And so, to the extent that we can support them in any way, uh, we're going to be ready and willing and, and will do our best to to further their next. Their next group initiatives and that applies for that, that applies for the rest of our portfolio, as well.
And so I can't, um, I don't want to speak for what, for what um the team's aims are and how they wish to structure structure, their balance sheet to say that, uh, we value their relationship. We value their partnership and would love to support them in any way we can.
and, uh, and think and, um,
and I'm really excited for a really excited for, um,
for what they're executing on within their portfolio.
Again, and 1 last 1, if I met, uh, I know that we discussed, you know, the competition from other sectors before. Uh, I was recently at a blank Rome conference, uh, Bank need them. There they said um that they have issue about hundred million dollars in loans uh to the Cannabis sector including Coral Leaf most recently, they said they will never go to 2 billion, but they imply that they could, you know, double the current amount. So, my read is that the competition from the regional Banks under the current regulatory, uh, uh, uh,
Is increasing whether it's value Bank, need them or other people. Um uh, am I wrong about that with, uh, Peter?
I think those those banks that have those banks that have developed an expertise that have invested in the infrastructure and invested in the relationships of the Cannabis space, in general, those banks have done well.
Those banks are now opting to go deeper because they've seen they've seen. Um, they've seen they've experienced success.
Uh and so I think we're, I think, I think we've seen that among some of the among some of the largest banks that have consistently deployed capital in the space that they're uh, that they're seeking to do more and that's great. We view we view Banks.
As partners in our in in in our deployment strategy there are leveraged providers in both our public and private funds.
There are co- lenders in many transactions. There are co-owners in unit trans transactions, in many in many transactions.
And and so we think they're an integral part of the lending ecosystem, and they're part of this process of building a mature Capital markets for for the Cannabis industry.
and I think,
To compare just to compare where the banking industry sits within the broader private credit.
Private credit ecosystem today.
Banks are not outside of the cannabis industry.
banks are banks are
operators alongside of the private credit space and the private credit space and whether that's mortgage rates and or btc's um operate alongside the banking banking ecosystem and they benefit 1 another significantly and work together uh work together as part of the ecosystem and that's what we hope to see develop in the Cannabis industry.
And that's what and that's what we're trying to build a Chicago, Atlantic through our various Partnerships with with nearly all of the major banks that are operating that are operating in the Cannabis space today.
Uh so long story short, we we we welcome and and have worked to help banking institutions enter the Cannabis space and we hope more will do. So
Look, I'm sorry. I want to add 1 more question. If you mind and apologies, if there's someone else on the Queue here, um, can you give an update in terms of your, your, your your uh lending program to the New York? Um, you know, I think it's your loan is to regulate, right? It's not necessarily, or to a fund. They are not necessarily to the the stores. Uh, I think we're up to 261 stores. The the, obviously, the, the state continues to expand in terms of retail stores, but I haven't seen necessarily done reflected in your loan book or maybe I'm missing something, but if you can provide an update on that, thank you.
I'm sorry Pablo I I lost you at the beginning of your question, could you could you repeat it? Okay? I'm going to repeat that. I'm talking about New York state, in terms of the number of stores and dispensaries in New York continues to grow. We, I think north of 250 now and I thought that given the agreement that you have with the regulator there in terms of the funding, the fund, their uh, that as the number of Tours increases that you're lending to a program, we have increased but I don't see that reflecting your loan book or or or maybe I'm missing something and I'm sorry if it's about connection.
No, thank you. Um, the New York social Equity Fund has opted, uh, has opted not to draw additional capital from from our funds. They've they've supported and the support of the construction of close to 23 stores across the state.
and uh, and if they've taken a pause on on deployments, um, that being said, we we are ready and willing to support them if they, if they decide to continue deployments and continue to, uh, to grow the portfolio of stores, that, that their support
Got it. Thank you.
This concludes our question-and-answer session for today.
I would now like to turn the conference back over to Peter sack for any closing remarks.
Thank you all for, for the support, and the questions uh, glad to follow up offline with any questions and please reach out at any time. Thank you again.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect