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Chicago Atlantic Real Estate Finance, Inc. (REFI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered strong originations ($90.7M) and portfolio growth to $410.2M principal outstanding across 30 companies, while weighted average yield slipped to 17.2% on a 50 bps prime cut; GAAP diluted EPS was $0.39 and distributable EPS was $0.46 .
  • Sequentially, net interest income fell to $14.07M from $14.46M, and GAAP net income declined to $7.92M from $11.21M; management attributed the softness primarily to the prime rate cut and timing of unsecured notes deployment .
  • Liquidity remains solid ($67M total; $71.5M revolver availability), leverage increased to ~34% debt/book equity after a $50M 9% unsecured term loan draw; one loan remains on non‑accrual with CECL reserve at $4.3M (~1.1% of principal) .
  • 2025 outlook: maintain 90–100% dividend payout ratio on distributable earnings; Board expects a Q4 2025 special dividend if taxable income requires it—a continuing income narrative and potential stock catalyst alongside workout progress on Loan #9 .
  • Note: Wall Street consensus (S&P Global) was unavailable at time of query; beat/miss vs estimates cannot be assessed (we attempted retrieval via S&P Global and hit request limits).

What Went Well and What Went Wrong

What Went Well

  • Robust Q4 deployment: $90.7M gross originations ($52.6M to new borrowers; $38.1M to existing delayed draws), expanding the portfolio and diversification across limited-license states .
  • Liquidity and capital access: $50M unsecured term loan (9.0%, Oct 2028), revolver availability of $71.5M, and total liquidity of $67M to support pipeline ($500M) .
  • Strategic posture and discipline: Management reiterated conservative underwriting assuming no federal rescheduling and emphasized pipeline quality; “We underwrite assuming that rescheduling does not occur… When [reforms] do occur, that’s a positive catalyst” .

What Went Wrong

  • Yield and earnings pressure: Weighted average portfolio yield to maturity fell to ~17.2% (from 18.3% in Q3) on a 50 bps prime cut and modestly lower origination yields; GAAP EPS declined to $0.39 (from $0.56) .
  • Mixed message on interest expense: The press release noted a ~$0.4M decrease vs Q3 due to lower average borrowings, but CFO clarified interest expense increased by ~$0.4M on the new unsecured notes (partially offset by lower revolver borrowings) .
  • Continued non‑accrual and CECL reserve build: One loan remains on non‑accrual; CECL reserve increased sequentially to $4.3M, ~1.1% of loans held for investment .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Interest Income ($USD Millions)$16.53 $16.26 $15.48
Net Interest Income ($USD Millions)$14.84 $14.46 $14.07
Total Expenses ($USD Millions)$5.51 $3.25 $5.98
CECL (Benefit)/Provision ($USD Millions)($0.25) ($0.99) $0.30
GAAP Net Income ($USD Millions)$9.40 $11.21 $7.92
GAAP Diluted EPS ($)$0.51 $0.56 $0.39
Distributable Earnings ($USD Millions)$9.86 $11.16 $9.21
Distributable EPS – Basic ($)$0.54 $0.57 $0.47
Distributable EPS – Diluted ($)$0.53 $0.56 $0.46

Portfolio and Operating KPIs

KPIQ4 2023Q3 2024Q4 2024
Principal Outstanding ($USD Millions)$353.64 loans carrying value; $359.23 total assets $362.3 principal $410.2 principal
Portfolio Companies (#)N/A29 30
Weighted Avg Yield to Maturity (%)N/A18.3 17.2
Floating Rate Share (%)N/A62.8 62.1
Real Estate Collateral Coverage (x)N/A1.2x 1.1x
Gross Originations ($USD Millions)N/A$32.7 $90.7
Non‑Accrual Loans (#)N/A1 1
CECL Reserve ($USD Millions)$4.97 $4.10 $4.35
Debt to Book Equity (%)N/A~18% ~34%
Liquidity (Revolver Availability, $USD Millions)N/A$94.5 $71.5
Total Liquidity (Net of Est. Liabilities, $USD Millions)N/A~$80 ~$67
Dividends Declared (Q4)N/A$0.47 regular (paid Oct 15, 2024) $0.47 regular; $0.18 special (paid Jan 13, 2025)

Notes:

  • “Total Expenses” in the table reflect the reported totals in the statements; the press release also highlighted ~$5.7M before CECL in Q4 2024 .
  • Real estate collateral coverage was cited at 1.1x for Q4 by management on the call; Q3 press release cited 1.2x .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend Payout Ratio (Distributable Earnings basis)FY 2025Not specified in Q3; management historically targeted strong cushion Maintain ~90%–100% payout; potential Q4 2025 special dividend if required by taxable income Maintained income focus; reiterated policy
Special Dividend PolicyFY 2025Historically used specials to meet taxable income distribution requirements (e.g., $0.18 in Jan 2025 for FY 2024) Expect Q4 2025 special dividend if taxable income requires Maintained

Earnings Call Themes & Trends

TopicQ2 2024 (Previous Mentions)Q3 2024 (Previous Mentions)Q4 2024 (Current Period)Trend
Regulatory posture (rescheduling)Underwrite as if rescheduling never happens; conservative approach despite optimism Election/regulatory outcomes do not change underwriting; affirmed discipline Continue underwriting assuming no rescheduling; reforms would be upside Stable conservative stance
Interest rates and portfolio floorsFloating share ~76%; conservative leverage; focus on spreads Increased floors/shift to fixed to mitigate cuts; floating fell to ~63% YTM fell to 17.2% on 50 bps prime cut; floating ~62% with higher floors More insulated vs cuts
Pipeline and deployment~$508M pipeline; ATM raised $6.3M ~$560M pipeline; added $50M unsecured loan Nearly $500M pipeline; $90.7M Q4 originations; liquidity ~$67M Healthy; active deployment
Credit quality and non‑accrualCECL ~$5.1M; Loan #9 non‑accrual CECL ~$4.1M; Loan #9 non‑accrual CECL ~$4.3M; Loan #9 remains non‑accrual; foreclosure/workout actions underway Stable with active workout
New York market updatePositive view to future; positioning in limited-license states N/AEncouraged by more stores, illicit crackdown, stronger product portfolios Improving market dynamics
Dividend philosophyRegular dividend with cushion; income stability Affirmed guidance; regular dividend paid Maintain payout ratio; regular + special dividend policy reiterated Consistent income focus

Management Commentary

  • “We underwrite assuming that rescheduling does not occur because it’s simply difficult to project… When they do occur, that’s a positive catalyst” — Peter Sack, Co‑CEO .
  • “Gross originations during the quarter were $90.7 million… percentage insulated from declining rates increased to nearly 68%” — David Kite, COO .
  • “Our net interest income of $14.1 million for the fourth quarter represented a 2.7% decrease… attributable to the 50 basis point decrease in the prime rate… and timing of deployment of unsecured notes” — Phil Silverman, CFO .
  • “We don’t expect to increase leverage in the near term beyond… our senior secured facility and its accordion feature” — Peter Sack, Co‑CEO .
  • “We want our investors to view the regular dividend as having significant cushion to performance” — Peter Sack, Co‑CEO .

Q&A Highlights

  • Leverage and funding: Management does not expect leverage beyond approved facility/accordion; ATM remains a tool. Demand remains healthy despite equity compression .
  • Credit quality: Stable risk ratings; Loan #9 workout progressing—aim to remove cease and desist, resume operations, then decide sale/hold .
  • Regulatory timing (Schedule III): Posture remains “no‑rescheduling” assumption; timeline likely pushed back absent new signals .
  • 280E/tax liabilities: Unpaid taxes treated as indebtedness; underwriting limits on accrual via covenants (FCCR/leverage) .
  • New York: Encouraged by regulator actions and product improvements combating illicit market .
  • Dividend philosophy: Preference for stable base dividend with cushion; specials used to meet taxable distribution requirements .

Estimates Context

  • We attempted to retrieve Wall Street consensus (S&P Global) for Q2–Q4 2024 EPS and revenue but encountered data request limits. Consensus was unavailable at time of query; therefore, a beat/miss analysis vs estimates cannot be provided. We attempted retrieval via S&P Global and were blocked by daily limit during GetEstimates.

Key Takeaways for Investors

  • Income durability with disciplined underwriting: Conservative posture assuming no federal rescheduling, strong collateral coverage (~1.1x), and increasing insulation from rate cuts through fixed rates and higher floors underpin distributable earnings policy .
  • Deployment momentum: Q4 originations of $90.7M and a ~$500M pipeline support near‑term asset growth; liquidity of ~$67M and revolver capacity of $71.5M provide funding flexibility .
  • Watch the workout: Progress on Loan #9 foreclosure and operational control could restore accrual status in 2025—an incremental NAV/risk catalyst .
  • Rate path sensitivity: Portfolio YTM fell to 17.2% on a 50 bps prime cut; further cuts would pressure yields, but mix shift (fixed/floors) mitigates downside .
  • Capital structure shift: Leverage stepped up to ~34% with $50M unsecured notes at 9%; supports growth but watch interest expense trajectory vs NII in 2025 .
  • Dividend policy continuity: Expect 90–100% payout of distributable earnings and potential Q4 special dividend—income-centric thesis intact .
  • State‑level catalysts: New York enforcement, Ohio adult-use rollout, and targeted M&A/growth projects in limited-license states likely to drive loan demand and originations .

Additional Q4 Context and Prior Quarters

  • Q4 press release and 8‑K: Portfolio expanded; one loan on non‑accrual; special dividend ($0.18) and regular dividend ($0.47) paid January 13, 2025 .
  • Prior quarters: Q3 showed rising adjusted distributable EPS ($0.56) and collateral coverage (~1.2x); Q2 reflected conservative leverage (26%) and 76% floating share before the mix shift .
  • Capital actions: $50M unsecured term loan (9%) closed October 2024; dividend declarations in December 2024 affirm income strategy .

Quotes and Data Sources:

  • Q4 2024 press release and 8‑K: .
  • Q4 2024 earnings call transcript: and –.
  • Q3 and Q2 2024 materials: – – –.