Chicago Atlantic Real Estate Finance, Inc. Q1 FY2026 earnings call

• Financial metrics: Net interest income, interest expense, average borrowings details. - CECL reserve: Amount, percentage of principal, increase reason. - Earnings per share and dividend distribution:每股收益及股息情况. - Loan activities: First quarter new loans and repayments. - Loan specific details: Commentary on loans like 36, 434, including discussions with borrowers and market conditions. - International market: Opportunities in Canadian market. - Medical and adult use: Discussion on operations and related policy impacts.

Net interest income for the first quarter was $13.1 million, a decrease of $1.2 million or 8% from $14.2 million in the fourth quarter of 2025, primarily due to the collection of past due unaccrued interest on loan number nine in the fourth quarter. Total interest expense in the first quarter of 2026 was approximately $2 million, an increase from $1.8 million in the fourth quarter. Average borrowings on the revolving loan increased to $48 million. The CECL reserve on loans held for investment as of March 31st, 2026 was approximately $8.7 million, representing 2.1% of outstanding principal of loans held for investment and increased by approximately $3.8 million from the fourth quarter, primarily due to increases in LTV for specific loans. Distributable earnings per weighted average share were approximately $0.47 basic and $0.46 fully diluted for the first quarter. Book value per common share outstanding was $14.39 as of March 31st, 2026, with approximately 21.5 million common shares outstanding on a fully diluted basis. During the subsequent period, the company advanced new gross loan principal of approximately $15.8 million and received $14.3 million in loan repayments.

• Expect dividend payout ratio based on basic distributable earnings per share of 90 to 100 percent for the 2026 tax year. - If taxable income requires additional distributions beyond regular quarterly dividends, expect a special dividend in the fourth quarter.

• Loan risks: Risk from specific loan LTV increases leading to reserve changes. - Market risks: Impact of Illinois market consolidation and competition on loans. - Policy risks: Risk from adult use rescheduling progress affecting business analysis and cost allocation.

Q: Please go ahead. Thank you, and good morning, everyone. And thanks, Peter, for the commentary on the regulatory front and, of course, the positive news that we've been receiving recently. I just want to start with loan number 36. Obviously, 4 and 34 are Arizona loans, and we know that's a tough market for growers. You mentioned 4 and 34 are in accruals or are part of a reserve. And in the case of 36, that's an Illinois loan, right? And it's a larger loan, $27 million. Whatever color you can provide more on that loan would be helpful. Arizona, I understand. Illinois, of course, we've seen Forefront and other companies have issues there. But if you can just give more color on that particular loan, number 36, would be helpful, please. Especially in the context that was issued in December 2024, which is not that long ago, I think. Bye-bye. Thanks.

A: Illinois market is experiencing consolidation on the retail front and is experiencing increasing competition on cultivation. This one in particular has strong real estate coverage and is a vertically integrated operator. And I think the reserving activity reflects our ordinary course performance. evaluation of portfolio company performance and risk. The discussions with the borrower are very constructive, and we expect that this can be – that this company's performance can be improved and resolved in a constructive and collaborative manner. And I'm hopeful that in the months ahead, we'll find this reserving activity conservative. But regardless, this is part of our ongoing process to show reserving activity that reflects conservative appreciation of performance and the portfolio. Thank you.

Q: On the same topic, Peter, can you give an update on Loan 434? These continue to evolve. I think it's too early to give specific updates, but they are constructive relationships. And by the same token, in the case of loan number nine, back into accruals, like you said, you were actively involved with them, collaborative basis. You know, I'm just trying to understand the potential for loans in the portfolio that can be equitized or where you can, succeed in bringing new buyers to those loans? I mean, how should we think about that as an opportunity going forward for the book?

A: I think it's important to contrast loan number nine with other reserving activities in the portfolio. Loan number nine was a foreclosure process, was a judicial foreclosure process. And that takes a substantial longer amount of time for resolution than when challenging situations within portfolio companies can be resolved constructively and collaboratively. I'd say that the markets for assets that are undergoing challenges have improved significantly over the last year. as expectations for rescheduling have moved from speculative to more definitive to, in the case of medical operators, executed. And so this is both an environment that is constructive and positive for deploying capital and for finding solutions within the book, whether that's finding new equity investors whether that's finding new equity investors, executing operational change, or working towards an exit. This is a better environment for both deployment and reorganization and problem solving than really we've seen in the last three years. Right. Thank you.

Q: And then on the topic of the unscheduled repayments, you know, thank you for the table you showed in the press release today, about $48 million unscheduled repayment in the first quarter. And I think Phil mentioned another $15 million so far in the second quarter. Is that out of the norm? I'm just trying to understand what's driving those early repayments or that just normal part for the course?

A: These are part of the course. We labeled them unscheduled, but unscheduled doesn't necessarily mean a surprise. And these were loans, a few of them were nearing their maturity date. Thank you. Look, a couple of more apologies if there's someone else in the Q&A queue. Looking at the 10Q loan number 45 in Canada, I don't know if that's the first time you've done a loan outside of the U.S., but can you comment on that and more in general opportunities in international, you know, Europe and even more in Canada?

A: It's not the first, maybe the first time that ReFi has executed a loan outside the U.S., but not the first time that Chicago and Tick is a platform. has executed a loan outside the U.S. and in Canada. I think we're finding that in the Canadian market, there has been stabilization of the market in some cases and rationalization of the market in terms of unprofitable operators leaving. And that's given room and air for profitable, well-executing operators to rise to the top, be recognized, to show strong results. and to provide opportunities for lenders to provide capital at very strong risk-adjusted returns. And I think in the past, we just haven't seen that. We haven't seen that opportunity set arise so meaningfully and so specifically and clearly. But I think we see this happen in a lot of markets that are oversaturated, that they go through a period of rationalization, and after that rationalization, pockets of opportunity emerge. All right. Thank you. One last one. And I know we've talked about this before. Sorry to interrupt, Mr. Zwanek. May we request you to return to the queue for any follow-up questions, please? Thank you. You have the next question coming from the line of Chris Muller with Citizens Capital Market. Please go ahead. Hey, guys. Thanks for taking the question. So I wanted to ask some clarifications around Schedule 3 that you may or may not know the answers to at this point. I guess, first off, what percentage of your guys' portfolio is medical? And I guess, how is that determined? Is that done at the license level, which my understanding is some states have dual-use licenses, or is it determined by the end user being either medical or rec?

A: Most of our borrowers that are operating as adult use are also operating as medical operators. And each of them then parse their revenue by medical versus adult use, but those medical and adult use sales in many cases can be operating out of the same dispensary. We haven't published what is medical versus adult use. I'm hopeful that within the year of 2026 that it's irrelevant, that the administrative hearings that are scheduled for June and July proceed, that adult use is rescheduled as well, and the industry doesn't have to go through this exercise of analyzing what's medical and what's adult use, that it can proceed to operate each business seamlessly. But we shall see. I think if the... If adult use measures and progress around adult use rescheduling falters or slows down, then I think you're going to see a lot of work among our borrowers to parse medical versus adult use operations to allocate costs. to allocate costs optimally between their medical and adult use operations to maximize tax efficiency. And I think you're also going to see state regulators perhaps adjusting the definitions within their adult use program to shift more of their operations towards what they can call and designate a medical program. But I hope those types of acrobatics are unnecessary because the administration has executed on its pathway to reschedule the entire supply chain. Got it. That's helpful. And I think I saw California is doing something along those lines, which I agree with you. Hopefully that's irrelevant and full schedule three gets done in June, but we'll see how that plays out. And then I guess on the CISO reserve increase in the quarter, and I may have missed this in your guys' prepared remarks, but Was that increase specific or general reserves? And how are you guys thinking about the impact on CISO reserves following Schedule 3?

A: That reserve activity was a mix of both specific and general. I should note that that reserve activity reflects the market and discount rates and valuations and loan-to-values as of 3-31. and they do not reflect the subsequent events of rescheduling market activity and discount rates thereafter. I think generally that rescheduling is a credit positive for all of our borrowers, and even those that don't have significant medical revenues. Should we expect to see some CISO releases throughout 2026 as those 280E issues work through the companies? It's certainly possible. It would be a reflection, not necessarily directly of rescheduling, but it would be a reflection of the inputs, a reflection of market sentiment, loan-to-values, cash flow calculations flowing through to the inputs that drive our CISO reserve policies and behaviors. Got it. Appreciate you guys taking the questions, and great to hear we finally got some positive news in the sector. Excellent. Thank you. Your next question comes from Aaron Gray with Alliance Global Partners. Please go ahead. Hi. Thank you for the question. The first question, obviously, there's a hope that we get the full plan rescheduled late summer or fall following the hearings, but you know, potentially in the near term or if full plan rescheduling takes a little bit more time. In this scenario, do you potentially get a little bit more aggressive in medical-only states where you know you have the removal of 280E, or does that change any of the potential near-term landscape opportunities? Thanks.

A: I think it does allow us – it allows us to be – to reflect in our underwriting the different tax treatment of medical revenues versus adult use revenues. And I think it drives us to, we will have to, if adult use does not proceed on adult use sales, then it will lead to, I think, different lenses for medical versus adult use, if only because it drives different cash flow dynamics of the operators. of which I think all underwriters at this space will need to adjust. Again, I hope it's not needed. But if the fundamentals of cash flows need to be reflected in this, then it will be reflected in our underwriting and deployment as well. Thanks. That's helpful, Collar. A lot of people in the industry talk about potential impact of the hemp ban coming to fruition today. in November, having a broader impact on the legal cannabis market. You know, curious to your view on that and your borrowers, you know, potentially there being that bank coming to fruition and helping out, you know, the fundamentals of your borrowers and your view on that.

A: We've absolutely heard anecdotal feedback that the hemp ban has driven revenue increases, particularly in states that have a larger prevalence of smoke shops and these types of black market hemp CBD and cannabis-adjacent products. I think it's been difficult to find a direct link in the data, but certainly anecdotal and correlative links between the hemp band and regulated cannabis cysts. Okay, great. Thank you. Just last question for me. In terms of liquidity and pipeline, any color on timing to having some things in the pipeline come to fruition? you know, with the liquidity you still have available. Thanks.

A: Excuse me. I think it's our pipeline tends to refresh itself every three to six months. And in that period of time, we have the opportunity to explore whether these transactions that are in the pipeline are transactions that we seek to close. It's difficult to forecast within that timeframe of what that deployment will be for better or worse. I'll point out that in this quarter, we have released our, I think at investor's request, we have released a breakdown between real estate backed and non-real estate loans within our portfolio in an effort to give our investors a better view into what portion of our pipeline is more directly affected financing. Yeah, very helpful. Appreciate that disclosure and color in response to the questions. Thank you very much. I'll go ahead and jump back in the queue. Thank you. As there are no further questions from the participants, this concludes our question and answer session. Also, the conference has now concluded. We thank you for attending today's presentation and you may now disconnect.