Chicago Atlantic Real Estate Finance(REFI) - 2024 Q4 - Annual Report

Financial Performance - Base Management Fees for 2024 totaled $4,138,401, an increase from$ 4,046,398 in 2023, reflecting a growth of approximately 2.3%[34] - Incentive Fees decreased to $3,923,495 in 2024 from$ 4,736,436 in 2023, representing a decline of about 17.2%[34] - The total expenses for 2024 amounted to $12,883,269, down from$ 13,582,044 in 2023, indicating a reduction of approximately 5.2%[34] Loan Portfolio and Performance - As of December 31, 2024, the company's loan portfolio totals approximately $410.2 million, with$ 404.7 million held for investment and $5.5 million reported at fair value[48] - The loan portfolio has a weighted-average yield-to-maturity internal rate of return (YTM IRR) of 17.2%, indicating a strong anticipated annualized return if loans are held to maturity[48] - The loan portfolio consists of 62.1% floating-rate loans and 37.9% fixed-rate loans as of December 31, 2024[50] - The total principal amount of fixed-rate loans is approximately$ 149.2 million, accounting for 37.0% of loans held for investment[50] - The total principal amount of floating-rate loans is approximately $253.3 million, accounting for 63.0% of loans held for investment[50] - The average interest rate across the loan portfolio is approximately 17.2%[54] - The loan portfolio includes various interest rate structures, with some loans having a prime rate floor of 3.25% to 6.25%[55] - The company has approximately$ 20.9 million in unfunded commitments to existing borrowers, with $14.9 million related to loans held for investment[48] Risk Management - The Manager's Investment Committee is responsible for managing credit risk through a comprehensive investment review process for each loan[46] - Credit risk is a significant concern, with the company focusing on originating higher quality loans and proactively monitoring them to mitigate potential losses[522] - The company is subject to varying degrees of credit risk, particularly with loans to relatively new and small companies in the cannabis industry[522] - The company actively manages risk exposure through monitoring and employing various risk management tools, including software and proprietary analytical methods[515] Regulatory Compliance and REIT Status - The company has qualified as a REIT and will continue to operate under this status, which allows it to avoid double taxation on distributed taxable income[92] - The company is subject to a 100% tax on net income from prohibited transactions, which includes sales of property held primarily for sale to customers[104] - At least 75% of the company's gross income must be derived from real property investments to satisfy the gross income tests[100] - The company must maintain at least 75% of its total assets in real estate assets to meet the asset tests[108] - The company must distribute at least 85% of its REIT ordinary income and 95% of its REIT capital gain income annually to avoid excise taxes[94] - The company is required to comply with regulatory requirements regarding stockholder ownership to maintain its REIT status[97] Market Conditions and Strategy - The company believes favorable market conditions in the cannabis industry provide attractive opportunities for non-bank lenders, although competition for capital is increasing[518] - The company's growth strategy includes diversifying financing sources to lower overall funding costs and increase loan sizes[43] - The company intends to continue providing financing to state-licensed cannabis operators and ancillary businesses in the U.S. and Canada, focusing on strong collateral[42] Loan Characteristics and Terms - The company targets loans with a principal balance greater than$ 5 million and requires real estate collateral coverage of at least one times the principal balance[43] - The loan with the highest principal amount is $27,110,506, maturing on 12/31/2025, with an interest rate of P+3% Cash[54] - The loan portfolio includes loans with varying payment structures, including interest-only (I/O) and principal and interest (P&I) payments[54] - The collateral for loans does not include cannabis inventory due to regulatory restrictions, which may impact profitability[56] Debt and Financing - The Revolving Loan commitment was increased from$ 92.5 million to $100 million as of June 30, 2023[63] - The contractual maturity date of the Revolving Loan was extended to June 30, 2026, with an expanded accordion feature allowing up to$ 150 million in aggregate loan commitments[64] - The company entered into a Loan Agreement for an aggregate commitment of $50.0 million in senior unsecured notes, maturing on October 18, 2028, with a fixed interest rate of 9.00% per annum[70] - The proceeds from the Unsecured Notes were used to temporarily repay outstanding obligations on the Revolving Loan and for other working capital purposes[71] Economic and Competitive Landscape - The company faces competition from various institutional investors, which may impact its ability to secure attractive lending opportunities[125] - Commercial real estate loans are subject to volatility influenced by various economic and local conditions, which could adversely affect the company's operations[523] - The company's operating results are significantly influenced by the difference between income earned on assets and borrowing costs, which are affected by prevailing market interest rates[514]