REFI Stock: U.S. Pot Stock With 11.9% Yield Declares Special Dividend

REFI Stock: U.S. Pot Stock With 11.9% Yield Declares Special Dividend

Chicago Atlantic Real Estate Finance Inc Issues Special Dividend to Maintain REIT Status

There hasn’t been much to cheer about on Wall Street in 2022 when it comes to cannabis stocks (most stocks, actually). But one U.S. pot company, Chicago Atlantic Real Estate Finance Inc (NASDAQ:REFI), has given its shareholders things to celebrate.

In addition to Chicago Atlantic Real Estate Finance stock’s market-thumping share price, it has ultra-high-yield dividends.

The company recently declared a quarterly dividend of $0.47 per share, for a current yield of 11.9%. (Source: “Chicago Atlantic Real Estate Finance Declares Common Stock Dividend of $0.47 for the Fourth Quarter of 2022,” Chicago Atlantic Real Estate Finance Inc, December 15, 2022.)

Here’s where it gets fun. As a real estate investment trust (REIT), the company has to hand out at least 90% of its taxable income to its shareholders in the form of dividends.

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Even with a quarterly dividend of $0.47 per share, REFI stock’s payout didn’t meet the threshold for Chicago Atlantic Real Estate Finance Inc to maintain its status as a REIT.

To remedy that, on December 15, management declared a special dividend of $0.29 per share. It will be paid on January 13, 2023 to shareholders of record as of the close of business on December 30, 2022.

This special dividend wasn’t a total surprise. During the third quarter, management said it might need to declare a special dividend in December to meet the company’s 2022 taxable income requirements.

John Mazarakis, Chicago Atlantic Real Estate Finance Inc’s executive chairman, noted, “Throughout the second half of this year, we have been conservative in our capital deployment and in our dividend payout ratio to account for what we believe could be a more challenging economic environment in 2023.” (Source: Ibid.)

He continued, “The combined $1.81 in regular quarterly dividends declared during 2022 and the additional special dividend of $0.29 reflect our success in redeploying capital from refinancings and early payoffs into higher yielding loans on an accretive basis as well as the depth and quality of our loan pipeline.”

Chicago Atlantic Real Estate Finance Inc Overview

Companies in the cannabis sector have been having a tough go of it. It’s not all their fault, though. The biggest issue is that slow-moving U.S. politicians have been holding up the federal legalization of marijuana.

Chicago Atlantic Real Estate Finance Inc plays to the current weakness in the marijuana industry. The REIT is a commercial real estate finance company that originates, structures, and invests in first-mortgage loans and alternative-structured financings secured by commercial real estate properties. (Source: “Form 10-Q,” United States Securities And Exchange Commission, November 9, 2022.)

The REIT’s loan portfolio primarily comprises senior loans to state-licensed operators and property owners in the cannabis industry. The loans are secured by real estate, equipment, receivables, licenses, and/or other assets.

As of September 30, the company had total loan commitments of about $348.9 million ($330.4 million funded and $18.5 million unfunded) across 22 companies.

REIT Tops Q3 Guidance & Raises Full-Year Outlook

For the third quarter ended September 30, Chicago Atlantic Real Estate Finance announced that its net interest income increased by 13.4% sequentially to $12.9 million. (Source: “Chicago Atlantic Real Estate Finance Announces Third Quarter 2022 Financial Results,” Chicago Atlantic Real Estate Finance Inc, November 9, 2022.)

The company’s net income in the third quarter increased by 31% sequentially to $9.8 million, or $0.55 per share.

The REIT reported adjusted distributable earnings of $10.3 million, or $0.58 per share, for the third quarter. That’s up by 16% from $8.8 million, or $0.50 per share, in the previous quarter.

Chicago Atlantic Real Estate Finance Inc ended the third quarter having borrowed $53.0 million on its $65.0-million secured credit facility. This resulted in a leverage ratio (debt-to-book equity) of approximately 20%.

For its full fiscal 2022, the company expects to report adjusted distributable earnings per share (EPS) in the range of $2.01 to $2.05, up from its previous guidance of $1.95 to $2.00. Chicago Atlantic Real Estate Finance Inc expects its leverage ratio to be in the range of 25% to 35%.

Mazarakis said, “Having previously made the strategic decision to limit growth in the REIT portfolio until we had sourced more accretive sources of capital, we exceeded our expectations for the third quarter, improved book value and raised our full year outlook on the strength of improved portfolio yields and a sequential reduction in expenses.” (Source: Ibid.)

He added, “The loan pipeline remains very robust, and we have been able to selectively fulfill demand through the broader Chicago Atlantic platform. With the recent increase in the REIT’s credit facility, we expect to put the additional capital to work accretively by executing on attractive pipeline opportunities that we are originating in limited-license states.”

Chicago Atlantic Real Estate Finance Stock’s Share-Price Performance

Chicago Atlantic Real Estate Finance Inc’s better-than-expected third-quarter financial results, improved guidance, and special-dividend announcement have helped juice REFI stock.

In the weeks following its third-quarter report, Chicago Atlantic Real Estate Finance stock rallied by an impressive 16.6%. It has held on to those gains.

As of this writing, REFI stock has been outpacing the broader market in 2022, up by 3.6% year-to-date and 6.8% year-over-year. That might not sound earth-shattering, but the S&P 500 is down by 19.5% year-to-date and 17% year-over-year.

Chart courtesy of StockCharts.com

The long-term outlook for Chicago Atlantic Real Estate Finance stock is bullish, with analysts providing an average 12-month share-price target of $20.00, which points to potential upside of 25%.

Analyst Take

Chicago Atlantic Real Estate Finance Inc is an excellent REIT operating in the U.S. cannabis sector.

Because of the marijuana industry’s macroeconomic headwinds, slower-than-hoped regulatory reform at the U.S. federal level, and price compression in many states, the company’s direct lending experience is increasingly becoming a competitive advantage.

Moreover, with weighted average yields to maturity of roughly 18% to 60% for its variable-rate loans, Chicago Atlantic Real Estate Finance Inc has performed well in 2022 amid rising interest rates.

REFI stock is definitely one to keep an eye on in 2023.