Chicago Atlantic Real maintains disciplined growth strategy with 16.5% yield, share repurchases, and robust cannabis pipeline despite market volatility.

OPERATOR - (00:00:26)

Good day and welcome to the Chicago Atlantic Real Estate Finance Inc. third quarter 2025 earnings call. Today, all participants will be in a listen only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note that today's event is being recorded. I would now like to turn the conference over to Tripp Sullivan of Investor Relations. Please go ahead.

Tripp Sullivan - Investor Relations - (00:01:05)

Thank you. Good morning. Welcome to the Chicago Atlantic Real Estate Finance conference call to review the Company's results. On the call today will be Peter Sack, Co Chief Executive Officer, David Kite, Chief Operating Officer and Phil Silverman, Chief Financial Officer. Our results were released this morning in our earnings press release, which can be found on the Investor Relations SECtion of our website along with our supplemental filed with the SEC. A live audio webcast of this call is being made available today. For those who listen to the replay of this webcast, we remind you that the remarks made herein are as of today and will not be updated subsequent to this call. During this call, certain comments and statements we make may be deemed forward looking statements within the meaning prescribed by the SECurities laws, including statements related to the future performance of our portfolio, our pipeline of potential loans and other investments, future dividends and financing activities. All forward looking statements represent Chicago Atlantic's judgment as of the date of this conference call and are subject to risks and uncertainties that can cause actual results to differ materially from our current expectations. Investors are urged to carefully review various disclosures made by the company, including the risk and other information disclosed in the company's filings with the SEC. We also will discuss certain non-GAAP measures, including but not limited to, distributable earnings. Definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in our filings with SEC. I'll now turn the call over to Peter Sack.

Peter Sack - Co Chief Executive Officer - (00:02:43)

Please go ahead. Thank you, Trip. Good morning everyone. This quarter, against the backdrop of a volatile private credit environment, we demonstrate another consistent period of execution and performance. The benefits of our consistent approach and disciplined focus on principal protection yielded a strong quarter and this quarter's gross originations have us on pace to hit our goal of net growth in the loan portfolio. Challenges in private credit markets have created newfound concern in the investor community. Declining interest rates impacted lenders with floating rate portfolios. The syndicated loan market experienced High profile fares of fraud and excess capital in the market underlies perceived lack of underwriting standards. I suspect that these broader concerns have caused us to trade at a sizable discount to our book value rather than the premium we long enjoyed since our IPO nearly four years ago. Noting this disconnect from the reality of our portfolio, our management team and board of directors recently purchased shares on the open market, bringing our collective ownership of the common Stock to nearly 1.8 million shares on a fully diluted basis. There are several reasons why we're so confident with what we've created at Chicago at the first is that we have a cannabis pipeline that currently stands at approximately 441 million. We believe that this pipeline of opportunities is unrivaled in the industry and is diversified across growth investments, maturities in the market, M&A activity related to operational and balance sheet restructurings and potential ESOP sale transactions. Secondly, we have the most robust platform and capital to meet the growth of the industry. We deploy capital with consumer and product focused operators in limited licensed jurisdictions at low leverage profiles to support fundamentally sound growth initiatives. I can't think of a better example of our commitment to the industry than Chicago Atlantic's funding this quarter of what we believe to be the largest real estate backed revolving credit facility among US operators in the history of the industry. A $75 million three year secured revolver with Verano. Lastly, we constructed a portfolio with differentiated and low levered risk return profile that is insulated from both cannabis equity and interest rate volatility. As David will break down for you in a moment. Because we have structured our floating loans with interest rate floors, only approximately 14% of our total loan portfolio is exposed to any further rate declines based on today's 7% prime rate. That discipline provides a meaningful measure of protection to the portfolio. We are focused on outperforming and delivering the kind of returns that we all expect to shareholders. Confidence in the strategy is important and hopefully I provided some insight into why we are enthusiastic and why we as a management team executed share repurchases in recent weeks. But execution on our plan matters even more and I look forward to reporting on our continued progress over the balance of the year. David, why don't you take it from here?

David Kite - Chief Operating Officer - (00:05:46)

Thank you Peter. As of September 30, our loan portfolio principal totaled approximately 400 million across 26 portfolio companies with a weighted average yield to maturity of 16.5% compared with 16.8% for the second quarter. Gross originations during the quarter were $39.5 million of principal funding of which $11 million was advanced to a new borrower and $20 million was related to the new Verano Credit facility that Peter mentioned earlier. These were offset by unscheduled principal repayments of 62.7 million that we disclosed last quarter. As of September 30, 2025, our portfolio consisted of 36.7% fixed rate loans and 63.3% floating rate loans. The floating rate portion is primarily benchmarked to the prime rate.. Following last week's 25 basis point rate reduction, bringing the prime rate. to 7%, only 14% of our portfolio remains exposed to further rate Decline. The remaining 86% is either fixed rate or protected by primate floors of 7% or higher. Importantly, our floating rate loans are not exposed to interest rate caps. This structural advantage, combined with our rate floor protections positions our portfolio favorably compared to most mortgage REITs. Should the federal Reserve implement another adjustment to the Fed Funds target in December, we are well insulated against the adverse effects of declining interest rates. Total leverage equaled 33% of book equity at September 30 compared with 39% as of June 30. As of September 30, we had $52.4 million outstanding on our senior secured revolving credit facility and $49.3 million outstanding on our unsecured term loan. As of today, we have approximately $69.1 million available on the senior credit facility and and total liquidity net of estimated liabilities of approximately 63 million. I'll now turn it over to Phil.

Phil Silverman - Chief Financial Officer - (00:07:50)

Thanks, David. Our net interest income of 13.7 million for the third quarter represented a 5.1% decrease from 14.4 million during the second quarter of 2025. The decrease was primarily attributable to non recurring prepayment make, whole exit and structuring fees, which amounted to 1.1 million for Q3 2025 compared with 1.5 million in Q2 2025. Additionally, approximately 0.1 million of the decrease in net interest income was attributed to the impact of the 25 basis point rate cut late in September on our floating rate portfolio and interest expense on our revolving credit facility. Total interest expense, including non-cash amortization of financing costs for the third quarter was approximately 1.6 million, down from 2.1 million in the second quarter. The weighted average borrowings on our revolving loan decreased 14 million compared to 42.3 million during the second quarter. Our CECL reserve on our loans held for Investment as of September 30, 2025 was approximately 5 million, compared with 4.4 million as of June 30. On a relative size basis, our reserve for expected credit losses represents approximately 1.25% of our outstanding principal of our loans held for investment on a weighted average basis, our portfolio maintains strong real estate coverage of 1.2x. Our loans are secured by various forms of other collateral in addition to real estate, including UCC-1 all asset liens on our borrower credit parties. These other collateral types contribute to overall credit quality and lower loan to value ratios. Our portfolio has a loan to enterprise value ratio on a weighted average basis of 43.5% as of September 30, calculated as senior indebtedness of the borrower divided by the fair value of total collateral to REIT. Distributable earnings per weighted average share on a basic and fully diluted basis were approximately $0.50 and $0.49 for the third quarter, a modest decrease from $0.52 and $0.51 respectively. During the second quarter and in October, we distributed the third quarter dividend of $0.47 per common share declared by our board in September. Our book value per common share outstanding was $14.71 as of September 30, 2025, and there were approximately 21.5 million common shares outstanding on a fully diluted basis as of such date. We continue to expect to maintain a dividend payout ratio based on our basic distributable earnings per share of 90 to 100% for the 2025 tax year. If our taxable income requires additional distributions more than the regular quarter dividend to meet our taxable income requirements, we expect to meet that requirement with a special dividend in the fourth quarter. Operator, we're now ready to take questions.

OPERATOR - (00:10:44)

Thank you. We will now begin the question and answer session. To ask a question you may press Star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star then two. At this time we will take today's first question from Aaron Gray with Alliance Global Partners. Please proceed.

Aaron Gray - Analyst - (00:11:10)

Hi, good morning and thank you very much for the questions here. First question for me just wanted to talk about the pipeline a bit so 441 million. I know that's down a little bit from prior quarters. Just wanted to talk about there's some large potential originations that exited the pipeline and I know prior quarter you had talked about ESOPss and potential opportunity there, so I want to see if you still see those as appealing and within the pipeline opportunities.

Unknown - (00:11:35)

Thank you. Yes, ESOPs continue to form a large part of the pipeline. There was no significant exits other than ordinary turnaround of our pipeline quarter-over-quarter. Our pipeline tends to refresh every quarter or so as deals that as deals either disappear, get turned down by us or get funded and so changes quarter-over-quarter. Ordinary churn.

Aaron Gray - Analyst - (00:12:11)

Okay, great. Glad to hear ESOPs are still a good opportunity for you guys. Second question for me, just in terms of some of the loans that are maturing before you're in any color you can talk about in terms of how those conversations are panning out, I know you're still targeting net portfolio growth for the year, so any color on those would be greatly appreciated.

Unknown - (00:12:32)

We are in the midst of negotiating the terms under which we may extend to maintain the business and maintain the position. And I expect that the vast majority of those loans that are maturing before the end of the year we will retain in some form or another.

Aaron Gray - Analyst - (00:12:52)

Okay, that's great to hear. Last question for me. You know, no direct implications for new cannabis legalization in the election today, but some indirect, particularly for Virginia. You know, if there is a new government that comes in that's more pro cannabis, particularly looking at that state, I know new states coming online can be a good opportunity for you guys. How would you guys look at a state like Virginia in terms of the opportunities there and how the regulatory landscape exists today and could exist tomorrow based on past legislation for retail setup?

Unknown - (00:13:23)

Thank you. We think Virginia is a very attractive medical market due to its very controlled licensure structure and, and the way in which the regulator has set up the geographic orientation of license holders. And we think it'll be an extremely attractive recreational market as well. So as those discussions progress, we'll be looking to extend our relationships in the state and deploy capital.

Aaron Gray - Analyst - (00:13:52)

Okay, great. Thanks for the call there.

Unknown - (00:13:53)

I'll go ahead and jump into the queue. Thanks, Aaron.

OPERATOR - (00:13:58)

And today's next question comes from Chris Muller with Citizen Capital Markets. Please, please proceed.

Chris Muller - Analyst - (00:14:06)

Congrats on another solid quarter here. So you guys have done a really great job underwriting a pretty challenging part of the market here. So can you guys talk about your approach to underwriting and what's driving that success? Is it more the type of borrowers you focus on or the geographies or maybe a combination of those?

Unknown - (00:14:26)

Yeah, I think you've hit on some of the key points. The first and I think the foundation of our underwriting is an analysis of each of the markets. Each of the market. of the markets of the 40 states that have legalized medical or recreational cannabis. And that underwrite begins before we've deployed a single dollar into that market. And it's not just a focus on the state, it's also a deeper dive into each piece of the supply chain within that market. We focus on limited licensed jurisdictions because we find that in these spaces, the regulatory mode creates greater predictability of wholesale prices, margins and the competitive environment. Within that framework, we focus on operators with a diverse sources of earning streams, whether that's earnings coming from a diverse portfolio of retail operations, retail and vertical integration, or retail vertical integration spread across multiple limited license states.

Chris Muller - Analyst - (00:15:32)

That's all very helpful. And I guess.

Unknown - (00:15:34)

And then lastly, and in addition to apologies, in addition to real estate collateral, we're focused on lending to operators at conservative leverage levels of under two times ebitda. And the combination of all of these factors, frankly allows for diversity of repayment, diversity of potential growth opportunities. And then while we're in structuring loans, I think it's important that in the majority of our loans, not only is our capital going towards growth initiatives that drive EBITDA improvement, and the majority of our loans also include amortization. And so the aim is that our loans will be less risky by their maturity date by virtue of EBITDA growth and loan pay down than they were at the outset, and that we can then continue to support those clients in the next phase of their growth, whether that's acquisitions, expansion of cultivation, expansion of retail, and it's really just consistency with what we think are pretty simple fundamentals approach to this industry. A focus on credit quality and a focus on principal protection that's allowed us to maintain the track record through a lot of volatility in equity valuations and in the marketplaces, the operating marketplaces in each of these states.

Chris Muller - Analyst - (00:16:59)

That's very, very helpful and I guess maybe looking forward a little bit. So looking at the LTVs of your portfolio, they're well below what we see for a typical commercial mortgage rate. So if we do end up getting some type of reform, whether it's this year, next year, whenever that timing is, what type of normalized LTV would you expect to see in the portfolio?

Unknown - (00:17:22)

Well, it's a difficult, it's a difficult question, difficult question to answer because there's a few variables, I would expect that in the case if the reform that we're discussing about is re-scheduling, I haven't seen examples of a significant amount of new lenders entering the market in the event of re-scheduling. And so I Think there's opportunity to increase our loan sizes in many cases with many of our borrowers by nature of the improved cash flow dynamics of operators in a re-scheduling environment because of the lack of the impact of 280e taxes. So that's one reason why you might see loan balances go up in a post re-scheduling world, because the fundamental cash flow profile of the industry and of individual operators has improved significantly. But also, on the other hand, I would expect there to be a lot more equity interest in the sector as a result of re-scheduling. And so I'd expect to see the denominator, the V in that ratio increase significantly starting with public operators and public cannabis valuations. And so the combination of those two, it's difficult to parse exactly what would be the change in ltv. Got it.

Chris Muller - Analyst - (00:18:43)

There's a lot of unknowns out there still.

Unknown - (00:18:45)

That's very fair. Yeah. But you know, I would note that we focus in our underwriting on the ability of a cannabis operator to service its indebtedness and to pay back that indebtedness. And that was our focus when, when cannabis companies were valued in the high teens. EBITDA. And that's our focus today, when cannabis companies are valued in single digit EV to EBITDA. And so I think it's an. So that's why the understanding of the cash flow and diversity of cash flows and the collateral is really fundamental to us and more fundamental to us than any and potentially ephemeral market cap. Potentially ephemeral license value.

Chris Muller - Analyst - (00:19:38)

Got it. It's all very, very helpful. And I guess just one clarifying one real quick if I could. Did I hear you guys correctly say that 86% of the portfolio has active floors in place as we sit today?

Unknown - (00:19:50)

That's a combination of floors and fixed rates. Got it, got it, got it.

Chris Muller - Analyst - (00:19:55)

All right, that was all the questions I had. Thanks very much.

Unknown - (00:20:00)

Thank you, Chris.

OPERATOR - (00:20:01)

And the next question comes from Pablo Zuanich with Zuanich and Associates. Please proceed.

Pablo Zuanich - Analyst - (00:20:09)

Thank you and good morning everyone. Peter, I realize that every company is different, but for example, you know, IIPR this morning announced an investment outside cannabis, AOC Gamma, transforming to a BDC Investing outside cannabis. Chicago Atlantic BDC also is investing outside cannabis. Is that something that Chicago Atlantic Real Estate Finance would also consider given the environment in cannabis?

Peter Sack - Co Chief Executive Officer - (00:20:37)

We have on occasion invested outside of cannabis, but we find that the risk reward profile for real estate backed loans in the cannabis space is simply much more attractive than the risk reward in most cases than the risk reward profile of real estate backed loans in non cannabis real estate opportunities. And that's what's driving our focus and the overwhelming allocation of the portfolio to cannabis opportunities in REIT. But to the extent that changes, to the extent that we find attractive real estate backed opportunities, we will certainly offer them to REIT and may deploy them in REIT. But Chicago Atlantic was founded with a focus on idiosyncratic and niche areas of the private credit market and, and with a focus on cannabis And that's part of our DNA. And that focus on cannabis and our fidelity to the sector is not going to change. And I think it's one of the reasons why we've persisted in this industry and continue to deploy in this industry as the equity markets have experienced significant volatility as other lenders have exited the space. We think that focus and specialization can drive outsized returns and really differentiated returns for our investors and that we can provide a better product, better support, better relationship with our clients, with our borrowers. And we find that that consistent presence in the market, that consistent support to our borrowers leads to better relationships, leads to more longevity of relationships and leads to a greater ability for us to build relationships with the next top operator that emerges from the ecosystem.

Pablo Zuanich - Analyst - (00:22:38)

That's good call. Thank you. Just moving on. In terms of 280E, you explained in the prior question that your main focus is on a company's ability to service debt. Right. So how do you think about the uncertain tax provision that most MSOs have? Right, the majority, well, most MSOs, not the majority, like pretty much all of them except one, are paying their taxes, declaring taxes as a normal corporation and assuming to ADE does not apply. And based on lawyers and auditors recommendations and advice, they are putting an item that's called uncertain tax provisions or benefits as a long term liability. Right. Which we will see if it's ever due and it doesn't have a maturity date. But how do you factor that in your ability to service debt?

Unknown - (00:23:30)

We consider it as another form of leverage. And so we aim to create covenants that limit the ability of our borrowers to incur uncertain tax liabilities above a certain amount. And that amount is set by our comfort of the total leverage profile of the company. Thank you.

Pablo Zuanich - Analyst - (00:23:53)

Look, I know we normally do not talk about specific borrowers, but you know, you mentioned Verano in your prepared remarks. I'm trying to understand here the dynamics in the case of Verano, Chicago Atlantic, I believe as a group, not just Refi, has about a $300 million facility, 292 million book in Verano due next year.

Unknown - (00:24:16)

Right.

Pablo Zuanich - Analyst - (00:24:17)

And now you have issued these revolvers for 75 million three year revolver. I'm trying to understand the dynamics in terms of why not just restructure the whole thing and you know, just have to restructure the 300 million loan that was due next year or given that we don't know what's going to happen in reform, you might have just, I'm just trying to understand why not do that as opposed to, you know, issuing a three year short term revolver here.

Unknown - (00:24:45)

We have incredible respect for the team at Revolver at Verano and what the team at Verano has accomplished, what they're executing on today and their growth prospects and we think their footprint, their asset base and their mindset when approaching the industry is something that we think is really unique within the space and we really value the partnership. And so to the extent that we can support them in any way, we're going to be ready and willing and we'll do our best to further their next growth initiatives. And that applies for the rest of our portfolio as well. So I can't, I don't want to speak for what the team's aims are and how they wish to structure their balance sheet, except to say that we value their relationship, we value their partnership and we'd love to support them in any way we can. And I'm really excited for, I'm really excited for what they're executing on within their portfolio.

Pablo Zuanich - Analyst - (00:25:57)

Okay, and one last one, if I may. I know we discussed the competition from other sectors before. I was recently at a blank Rome conference, Bank Needham. There they said that they have issued about $500 million in loans to the cannabis sector, including Coral Leaf. Most recently they said it will never go to 2 billion, but they imply that they could double the current amount. So my read is that the competition from the regional banks under the current regulatory status quo is increasing, whether it's Valley Bank, Nedham or other people. Am I wrong about that?

Reid - (00:26:34)

Reid? Peter.

Peter Sack - Co Chief Executive Officer - (00:26:37)

I think those banks that have developed an expertise that have invested in the infrastructure and invested in the relationships of the cannabis space in general, those banks have done well because they've deployed capital with discipline and conservatism and built relationships with some of the strongest operators in the space. And in many cases those banks are now opting to go deeper because they've experienced success. And so I think we've seen that among some of the, amongst some of the largest banks that have consistently deployed capital in the space that they're seeking to do more. And that's great. We view banks as partners in our deployment strategy. There are leverage providers in both our public and private funds. There are co lenders in many transactions. There are co lenders in unitransactions transactions in many transactions. And so we think they're an integral part of the lending ecosystem and they're part of this process of building a mature capital markets for the cannabis industry. And I think just to compare where the banking industry sits within the broader private credit ecosystem today, banks are not outside of the cannabis industry. Banks are operators alongside of the private credit space. And the private credit space, and whether that's mortgage, REITs and or BTCs operate alongside the banking ecosystem and they benefit one another significantly and work together as part of this ecosystem. And that's what we hope to see develop in the cannabis industry. And that's what we're trying to build at Chicago Atlantic through our various partnerships with nearly all of the major banks that are operating in the cannabis space today. So long story short, we welcome and have worked to help banking institutions enter the cannabis space and we hope more will do. So.

Pablo Zuanich - Analyst - (00:28:54)

I'm sorry, I want to add one more question, if you don't mind, and I apologize if there's someone else. On the queue here. Can you give an update in terms of your lending program to New York? You know, I think your loan is to a regulator, right? It's not necessarily to a fund, they are not necessarily to the stores. I think we're up to 251 stores. Obviously the state continues to expand in terms of retail stores, but I haven't seen necessarily that reflected in your loan book. Or maybe I'm missing something. But if you can provide an update on that.

Unknown - (00:29:25)

Thank you. I'm sorry, Pablo, I lost you at the beginning of your question. Could you repeat it?

Pablo Zuanich - Analyst - (00:29:30)

Okay, I'm going to repeat that. I'm talking about New York State in terms of the number of stores and dispensaries in New York continues to grow. We're I think north of 250 now. And I thought that given the agreement that you have with a regulator there in terms of funding the fund there, that as the number of stores increases, that your lending to a program would have increased. But I don't see that reflected in your loan book. Or maybe I'm missing something and I'm sorry, if it's about some action, no, thank you.

Unknown - (00:29:59)

The New York Social Equity Fund has opted not to draw additional capital from our funds. They've supported the construction of close to 23 stores across the state, and they've taken a pause on deployments. That being said, we are ready and willing to support them if they decide to continue deployments and continue to grow the portfolio of stores that they're supporting.

Pablo Zuanich - Analyst - (00:30:32)

Got it. Thank you.

OPERATOR - (00:30:37)

This concludes our question and answer session for today. I would now like to turn the conference back over to Peter Sack for any closing remarks.

Peter Sack - Co Chief Executive Officer - (00:30:46)

Thank you all for the support and the questions. Glad to follow up offline with any questions, and please reach out at any time. Thank you again.

OPERATOR - (00:30:59)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.