Chicago Atlantic Real Estate Finance, Inc. Q2 FY2026 earnings call

Portfolio Update

• Q2 2026 gross loan originations totaled $56.8 million, with $56.1 million funded to new borrowers and $0.7 million to existing borrowers, offset by $19.7 million in total repayments ($3.3 million scheduled amortization, $16.4 million full loan prepayments).
• Portfolio credit quality remained stable: 10.8% of the portfolio is risk-rated 4 or higher as of June 30, up only 0.1pp from Q1 due to total portfolio size changes, not downgrades. Non-accrual loans decreased to 3.7% of outstanding principal from 4.8% in Q1. CECL reserves total $9.4 million, equal to 2.3% of outstanding loans held for investment, with the portfolio maintaining a 1.2x average real estate coverage ratio and 46% average loan-to-enterprise value ratio.
• 37.5% of the portfolio is fixed-rate, 62.5% is floating-rate: 74% of floating-rate loans are benchmarked to prime (100% of which are at their rate floors), and 26% to SOFR. Only 3.6% of total portfolio principal is exposed to further rate declines, and no floating-rate loans require interest rate caps, creating a structural advantage over typical mortgage REITs.
• Total leverage increased to 47% of book equity at quarter-end from 38% in Q1, with $15 million of available liquidity remaining on the senior secured revolving credit facility as of the call date.

Proposed Merger with Chicago Atlantic BDC (Lean)

• An all-stock NAV-for-NAV merger agreement was announced in June 2026: Chicago Atlantic Real Estate Financial (ReFi) will first elect BDC status, then merge into Lean with Lean as the surviving entity. Both boards have unanimously approved the transaction.
• The merger is expected to unlock value for shareholders via increased scale, improved portfolio diversification, better stock liquidity, greater market visibility, and expanded capital market opportunities that ReFi could not achieve independently.
• A preliminary Form N-14 registration statement including a joint proxy statement was filed with the SEC on July 31, 2026, and is currently under SEC review. The transaction is on track to close in Q4 2026 pending all required approvals and customary closing conditions.

Coach Capital Second Lien Financing Transaction

• Post-quarter-end, ReFi acquired $62.5 million aggregate principal second lien mortgage notes secured by 32 U.S. retail properties leased to cannabis tenants managed by Coach Capital affiliates. The notes carry a 12% annual interest rate (10% cash, 2% paid-in-kind), plus an exit fee that gives ReFi upside exposure to property sale proceeds, creating convexity from potential capitalization rate compression as cannabis regulations evolve.
• The transaction was structured as an exchange for 4.3 million new common shares priced at a 1% premium to March 31 2026 book value, preserving cash for new originations.
• This transaction diversifies revenue streams, adds exposure to longer-duration sale-leaseback assets with alpha potential, and provides upside yield above the 12% base rate via the exit fee structure, while complying with current exchange listing restrictions on direct cannabis asset ownership.

Regulatory Environment Update

• Management is encouraged by recent federal cannabis policy progress, including the DoJ's rescheduling of medical cannabis from Schedule I to Schedule III, and the uplisting of two cannabis companies to the NYSE. An administrative hearing for adult-use cannabis rescheduling concluded in July 2025, with further updates expected after the August briefing deadline.
• Despite positive regulatory momentum, management maintains a conservative outlook, and the firm's core business strategy does not depend on these policy changes. The pipeline of cannabis investment opportunities remains strong at $649 million as of June 30, 2026, with $204 million backed by real estate collateral.

The firm operates a single focused segment of lending and investment focused on the U.S. cannabis industry. As of June 30, 2026, total loan portfolio principal (including loans held for investment and loans at fair value) was $453 million across 26 portfolio companies, with a weighted average yield to maturity of 15.8% (flat quarter-over-quarter). Net interest income for Q2 2026 was $12.8 million, a $0.3 million (2.2%) decrease from Q1 2026, driven by timing gaps in capital redeployment after loan prepayments and lower one-time non-recurring fee income ($0.8 million in Q2 vs. $1.1 million in Q1). Total interest expense (including non-cash amortization of financing costs) was $2.4 million in Q2, up from $2 million in Q1, due to higher average revolving loan borrowings ($67.5 million vs. $48 million in Q1). Distributable earnings were $0.44 per basic share and $0.43 per fully diluted share in Q2 2026. Book value per common share was $14.15 as of June 30, 2026, with 21.7 million fully diluted common shares outstanding. Post-quarter-end, the firm completed the Coach Capital transaction, adding $62.5 million in aggregate principal second lien notes in exchange for 4.3 million new common shares, bringing pro forma fully diluted shares to approximately 26 million.

• The proposed merger with Chicago Atlantic BDC is expected to close in Q4 2026, subject to SEC, shareholder, regulatory, and lender approvals, and other customary closing conditions.
• For the 2026 tax year, the firm will maintain a dividend payout ratio of 90% to 100% of basic distributable earnings per share, and will distribute all or nearly all of ReFi's accumulated taxable income prior to the merger's effective date.
• The Q2 2026 dividend of $0.47 per common share was distributed in July 2026, as declared in June.
• Management did not revise full-year 2026 financial performance guidance beyond the payout ratio and merger timeline guidance provided above.

• The proposed merger faces significant execution risks, including delays or failure to obtain SEC clearance, shareholder approval, regulatory approval, required lender consents, and failure to realize the anticipated strategic and financial benefits of the transaction.
• Adverse developments in U.S. federal and state cannabis regulation could negatively impact borrower performance, asset values, and the firm's ability to operate its core lending business.
• Timing gaps between loan prepayment and capital redeployment can pressure distributable earnings in the short term, even if underlying portfolio quality remains unchanged.
• New large institutional entrants to cannabis lending could increase competition and compress yield spreads over time, though management notes significant structural barriers to rapid new entry.
• Uncertainty around future IRS guidance related to 280E tax relief for cannabis operators, and potential future interstate cannabis trade, create long-term credit uncertainty for some borrowers, though management notes existing portfolio diversification mitigates these risks.

Q: With repeated capital redeployment timing issues pressuring distributable EPS relative to the dividend, how will management manage this dynamic for ReFi prior to the planned merger? / A: Management confirms that through the merger closing date, ReFi will continue to distribute all or nearly all of its taxable distributable earnings to shareholders, consistent with the firm's existing payout policy. No material interim policy changes are planned prior to transaction close. /

Q: If full cannabis rescheduling leads to new market entrants in cannabis lending, how is ReFi positioned to adapt and benefit from this changing landscape? / A: Unlike equity markets, entry into cannabis debt lending requires buy-in from multiple long-term institutional stakeholders including rating agencies, leverage providers, law firms, and accounting firms, which will slow new entry significantly. Management welcomes new participants, as the large existing market inefficiency leaves room for growth, and broader industry visibility will benefit ReFi as a well-positioned incumbent. The proposed merger is well-timed to capitalize on this trend by creating a larger, more visible platform for both equity and debt investors. /

Q: Why was the Coach Capital transaction structured as a second lien note purchase rather than direct purchase of the dispensary leases? Would ReFi pursue more similar transactions going forward? / A: Direct ownership of cannabis properties is prohibited under ReFi's current NASDAQ listing rules, so the second lien structure allows ReFi to capture the economic upside of cannabis retail real estate without violating listing requirements. This transaction gives ReFi exposure to the same type of supply/demand inefficiency that exists in cannabis lending, with exit fee upside if cap rates compress as regulations evolve. Management confirmed that additional similar transactions in the cannabis sale-leaseback space are possible in the future. /

Q: Has ReFi seen an unusual increase in early loan prepayments, and how is regulatory progress impacting borrower demand? / A: Early prepayment levels remain in line with historical normal cadence, with no material change from prior quarters. Management is actually seeing increased borrower demand for debt capital, particularly for M&A activity, as operators pursue expansion and acquisitions in the current low valuation environment ahead of potential regulatory changes.