Chicago Atlantic Real Estate Finance NASDAQ: REFI reported second-quarter distributable earnings of $0.44 per basic weighted average common share, below its $0.47 quarterly dividend, as early loan repayments temporarily delayed the redeployment of capital.
Co-Chief Executive Officer Peter Sack said the earnings shortfall primarily reflected timing rather than a deterioration in portfolio quality. Early in the quarter, $16.3 million of loans were prepaid, while the associated capital was not redeployed until later in the period. Although the company’s portfolio principal balance rose by roughly $40 million from the prior quarter, the timing gap affected income growth.
The company said it continues to see a strong pipeline of cannabis-related lending opportunities totaling $649 million as of June 30, though $204 million of that amount was backed by real estate collateral.
Portfolio growth and credit metrics
President and Chief Operating Officer David Kite said Chicago Atlantic Real Estate Finance’s loan portfolio totaled approximately $453 million across 26 portfolio companies at June 30. The portfolio’s weighted average yield to maturity was 15.8%, unchanged from the first quarter.
During the quarter, the company funded $56.8 million in gross originations, including $56.1 million to new borrowers. Repayments totaled about $19.7 million, consisting of $3.3 million in scheduled amortization and $16.4 million in full prepayments.
- 37.5% of the loan portfolio was fixed rate and 62.5% was floating rate.
- About 74% of floating-rate loans were tied to prime and 26% were tied to SOFR.
- All prime-rate loans were at their rate floors, and only about 3.6% of total loan principal was exposed to additional rate declines.
- Loans on non-accrual represented 3.7% of outstanding principal, down from 4.8% at March 31.
- About 10.8% of the portfolio was risk rated four or higher, compared with 10.7% in the prior quarter.
Kite said the small movement in the risk-rated portion of the portfolio resulted from changes in the total portfolio balance rather than ratings changes on individual loans. The company recorded $0.6 million in CECL reserves on two new loans.
Total leverage was 47% of book equity at quarter-end, up from 38% at the end of the first quarter. Chicago Atlantic had $90.1 million outstanding under its senior secured revolving credit facility and $49.5 million outstanding on its unsecured term loan. Kite said approximately $15 million remained available under the senior credit facility for new investments.
Earnings, dividend and book value
Chief Financial Officer Phil Silverman said net interest income was $12.8 million for the second quarter, down 2.2% from $13.1 million in the first quarter. He attributed the decline to the timing of redeployments following loan payoffs and lower one-time fee income. Non-recurring fee income was approximately $0.8 million in the second quarter, compared with $1.1 million in the first quarter.
Total interest expense, including non-cash amortization of financing costs, increased to approximately $2.4 million from $2 million in the prior quarter, as average borrowings under the revolving loan facility increased.
The company’s CECL reserve for loans held for investment was approximately $9.4 million, or about 2.3% of outstanding principal in that portfolio. Silverman said the portfolio maintained weighted average real estate coverage of 1.2 times and a loan-to-enterprise-value ratio of approximately 46%.
Book value per common share was $14.15 as of June 30, with approximately 21.7 million fully diluted common shares outstanding. The company paid its $0.47 per-share second-quarter dividend in July. Since inception, it has distributed $9.41 per common share in dividends, representing an annualized yield on cost of approximately 12.4% based on its initial public offering price.
Koach Capital financing adds real estate-linked exposure
Subsequent to quarter-end, Chicago Atlantic closed a financing transaction involving 32 retail properties managed by affiliates of Koach Capital. The properties are leased to cannabis tenants and are individually secured by second-lien mortgage notes with an aggregate principal balance of approximately $62.5 million.
The notes carry a 12% annual interest rate, including 10% paid in cash and 2% paid in kind. They also include exit fees of up to 2.5 times the commitment amount of each note, calculated at repayment net of interest and principal paid through that date.
In exchange for the notes, Chicago Atlantic issued about 4.3 million common shares at $14.53 per share, which Silverman said represented a 1% premium to March 31 book value. Pro forma for the transaction, fully diluted shares outstanding total approximately 26 million.
Sack said the structure provides exposure to economic benefits from cannabis-related retail real estate without direct ownership of cannabis properties, which he said would be prohibited under the company’s Nasdaq listing rules. He said the transaction could benefit if capitalization rates for properties leased to cannabis operators compress as capital becomes more available to the industry.
Silverman noted that, under GAAP, the Koach notes are expected to be presented in third-quarter financial statements as a reduction in stockholders’ equity rather than as loans held for investment. The transaction therefore did not materially increase total stockholders’ equity or total assets upon issuance, though the company expects the notes to qualify as real estate assets for REIT tax purposes.
Merger expected in fourth quarter
Chicago Atlantic also reiterated plans to merge with Chicago Atlantic BDC Inc., or LIEN, in an all-stock, adjusted net-asset-value-for-net-asset-value transaction. Under the proposal, REFI would elect to be treated as a business development company before merging into LIEN, which would be the surviving company.
Sack said management believes the transaction could provide greater portfolio diversification, scale, stock liquidity and access to capital-market opportunities. LIEN filed a preliminary Form N-14 registration statement containing a joint proxy statement and prospectus on July 31.
The companies expect the transaction to close during the fourth quarter of 2026, subject to stockholder approvals, lender consents, regulatory approvals and other customary conditions. Silverman said Chicago Atlantic expects to maintain a dividend payout ratio of 90% to 100% of basic distributable earnings for the 2026 tax year, notwithstanding the proposed merger.
About Chicago Atlantic Real Estate Finance (NASDAQ:REFI)
Chicago Atlantic Real Estate Finance, Inc NASDAQ: REFI is a publicly listed real estate finance company that specializes in originating and acquiring commercial real estate debt. Pursuant to its election to be treated as a real estate investment trust (REIT), REFI’s investment strategy focuses on floating-rate senior mortgage loans secured by income-producing properties across the United States. The company targets stabilized, performing assets in sectors such as multifamily, office, retail and industrial, aiming to generate attractive risk-adjusted returns through current income.
Established in 2015 and headquartered in Chicago, Illinois, REFI completed its initial public offering in 2019.
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