Chicago Atlantic Real Estate Finance Inc

Previous wording

Our loans are secured by real estate and, in addition, when lending to owner-operators in the cannabis industry, other collateral, such as equipment, receivables, licenses or other assets of the borrowers to the extent permitted by applicable laws and regulations. In addition, we seek to impose strict loan covenants and seek personal or corporate guarantees for additional protection. As of December 31, 2023 and 2022, 27.1% and 13.6%, respectively, of the loan principal held in our portfolio are backed by personal or corporate guarantees. We aim to maintain a portfolio diversified across jurisdictions and across verticals, including cultivators, processors, dispensaries, as well as ancillary businesses. In addition, we may invest in borrowers that have equity securities that are publicly traded on the Canadian Stock Exchange (“CSE”) in Canada and/or over-the-counter in the United States.

Current wording

Our loans are secured by real estate and, in addition, when lending to owner-operators in the cannabis industry, other collateral, such as equipment, receivables, licenses or other assets of the borrowers to the extent permitted by applicable laws and regulations. In addition, we seek to impose strict loan covenants and seek personal or corporate guarantees for additional protection. As of December 31, 2024 and 2023, 36.5% and 27.1%, respectively, of the loan principal held in our portfolio are backed by personal or corporate guarantees. We aim to maintain a portfolio diversified across jurisdictions and across verticals, including cultivators, processors, dispensaries, as well as ancillary businesses. In addition, we may invest in borrowers that have equity securities that are publicly traded on the Canadian Stock Exchange (“CSE”) in Canada and/or over-the-counter in the United States.

Previous wording

As of December 31, 2023, our portfolio is comprised primarily of first mortgages to established multi-state or single-state cannabis operators or property owners. In addition, we own approximately $0.8 million, at fair value, of publicly-traded corporate bonds issued by a cannabis operator. We consider cannabis operators to be established if they are state-licensed and are deemed to be operational and in good standing by the applicable state regulator. We do not own any stock, warrants to purchase stock or other forms of equity in any of our portfolio companies that are involved in the cannabis industry, and we will not take stock, warrants or equity in such issuers until permitted by applicable laws and regulations, including U.S. federal laws and regulations.

Current wording

As of December 31, 2024, our portfolio is comprised primarily of first mortgages to established multi-state or single-state cannabis operators or property owners. We consider cannabis operators to be established if they are state-licensed and are deemed to be operational and in good standing by the applicable state regulator. We do not own any stock, warrants to purchase stock or other forms of equity in any of our portfolio companies that are involved in the cannabis industry, and we will not take stock, warrants or equity in such issuers until permitted by applicable laws and regulations, including U.S. federal laws and regulations.

Previous wording

We generate revenue primarily in the form of interest income on loans. As of December 31, 2023 and 2022, approximately 80.5% and 83.1%, respectively, of our portfolio was comprised of floating rate loans, and 19.5% and 16.9% of our portfolio was comprised of fixed rate loans, respectively. The floating rate loans described above are variable based upon the Prime Rate plus an applicable margin, and in many cases, a Prime Rate floor.

Current wording

We generate revenue primarily in the form of interest income on loans. As of December 31, 2024 and 2023, approximately 62.1% and 80.5%, respectively, of our portfolio was comprised of floating rate loans, and 37.9% and 19.5% of our portfolio was comprised of fixed rate loans, respectively. The floating rate loans described above are variable based upon the Prime Rate plus an applicable margin, and in many cases, a Prime Rate floor.

Previous wording

audit fees and expenses from our independent registered public accounting firm;

Current wording

audit and tax compliance fees and expenses from our independent registered public accounting firm;

Previous wording

We are a Maryland corporation that elected to be taxed as a REIT under the Code, commencing with the taxable period ended December 31, 2021. We believe that we have qualified as a REIT and that our method of operation will enable us to continue to qualify as a REIT. However, no assurances can be given that our beliefs or expectations will be fulfilled, since qualification as a REIT depends on us satisfying numerous asset, income and distribution tests which depends, in part, on our operating results.

Current wording

We are a Maryland corporation that elected to be taxed as a REIT under the Code, commencing with the taxable year ended December 31, 2021. We believe that we have qualified as a REIT and that our method of operation will enable us to continue to qualify as a REIT. However, no assurances can be given that our beliefs or expectations will be fulfilled, since qualification as a REIT depends on us satisfying numerous asset, income and distribution tests which depends, in part, on our operating results.

Previous wording

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We will be subject to interest rate risk in connection with our assets and our related financing obligations.

Current wording

Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our assets and our related financing obligations.

Previous wording

Our operating results will depend in large part on differences between the income earned on our assets and our cost of borrowing. The cost of our borrowings generally will be based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase (a) while the yields earned on our leveraged fixed-rate loan assets will remain static, and (b) at a faster pace than the yields earned on our leveraged floating-rate loan assets, which could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time as well as the magnitude and duration of the interest rate increase. Further, an increase in short-term interest rates could also have a negative impact on the market value of our target investments. If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely affect our liquidity and results of operations.

Current wording

Our operating results depend in large part on differences between the income earned on our assets and our cost of borrowing. The cost of our borrowings generally are based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase (a) while the yields earned on our leveraged fixed-rate loan assets will remain static, and (b) at a faster pace than the yields earned on our leveraged floating-rate loan assets, which could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time as well as the magnitude and duration of the interest rate increase. Further, an increase in short-term interest rates could also have a negative impact on the market value of our target investments. If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely affect our liquidity and results of operations.

Previous wording

These factors could lower our net interest income or cause a net loss during periods of rising interest rates, which would harm our financial condition, cash flows and results of operations. As of December 31, 2023, we had $286.4 million of floating rate loans of which 81.9%, based on principal outstanding, have interest rate floors, and one loan is subject to an interest rate cap (Note 3) as summarized below:

Current wording

These factors could lower our net interest income or cause a net loss during periods of rising interest rates, which would harm our financial condition, cash flows and results of operations. As of December 31, 2024, we had $250.6 million of floating rate loans of which 93.2%, based on principal outstanding, have interest rate floors as summarized below:

Previous wording

On February 28, 2024, Chicago Atlantic Lincoln, LLC ("CAL") entered into a Fifth Amended and Restated Loan and Security Agreement (the “Fifth Amendment and Restatement”). The Fifth Amendment and Restatement extended the contractual maturity date of the Revolving Loan until June 30, 2026, and expanded the existing accordion feature to permit aggregate loan commitments of up to $150.0 million. No other material terms of the Revolving Loan were modified as a result of the execution of the Fifth Amendment and Restatement. The Company incurred debt issuance costs of approximately $0.1 million related to the Fifth Amendment and Restatement, which were capitalized and will subsequently be amortized through maturity.

Current wording

On February 28, 2024, CAL entered into a Fifth Amended and Restated Loan and Security Agreement (the “Fifth Amendment and Restatement”). The Fifth Amendment and Restatement extended the contractual maturity date of the Revolving Loan until June 30, 2026, and expanded the existing accordion feature to permit aggregate loan commitments of up to $150.0 million. No other material terms of the Revolving Loan were modified as a result of the execution of the Fifth Amendment and Restatement. The Company incurred debt issuance costs of approximately $0.1 million related to the Fifth Amendment and Restatement, which were capitalized and will subsequently be amortized through maturity.

Previous wording

For the year ended December 31, 2023, our cash loan fundings, net of original issue discounts and other upfront fees were approximately $92.2 million. We received approximately $90.3 million of total proceeds from sales and principal amortization of loans of $13.4 million and $76.9 million, respectively.

Current wording

For the year ended December 31, 2024, our cash loan fundings of loans held for investment, net of original issue discounts and other upfront fees were approximately $161.3 million. We received approximately $121.5 million of total proceeds from sales and principal amortization of loans of $19.0 million and $102.5 million, respectively.

Previous wording

In total, our loans held for investment, at carrying value, increased by $14.3 million, from $339.3 million at December 31, 2022 to $353.6 million as of December 31, 2023. Total loan commitments and contingencies as of December 31, 2023 is approximately $371.3 million, of which $7.5 million is unfunded.

Current wording

In total, our loans held for investment, at carrying value, increased by $48.9 million, from $353.6 million at December 31, 2023 to $402.5 million as of December 31, 2024.

Previous wording

In December 2023, we entered into an amendment to Loan #4, which extended the maturity date to February 14, 2024. The amendment increased the PIK rate from 2.0% to Prime plus 11.75% and cash interest is 0% from December 1, 2023 to maturity.

Current wording

In June 2024, we entered into an amendment to Loan #4, which extended the maturity date from May 17, 2024 to June 17, 2026, and decreased the PIK rate from 15% to 0%. The cash interest is fixed at $65,765 per month until May 31, 2025, and $67,738 per month thereafter to maturity.

Previous wording

In March 2023, we completed the sale of a secured loan to an affiliate under common control. The selling price of approximately $13.7 million was approved by the Audit Committee of the Board and the fair value approximated the carrying value of the loan plus accrued and unpaid interest through March 31, 2023.

Current wording

On October 1, 2024, the Company sold $6.0 million of the principal balance of Loan #11, which was classified as held for sale, to an affiliate under common control with the Manager. The total selling price of approximately $6.0 million was approved by the audit committee of the Board. The fair value approximated the carrying value of the loan of $6.0 million plus accrued unpaid interest through the sale date. On October 4, 2024, the outstanding principal balance of Loan #11 was repaid in full along with all applicable accrued interest and fees payable at maturity.

Previous wording

In December 2023, Loan #6 was placed on non-accrual status. As of December 31, 2023, Loan #6 is held on the consolidated balance sheet with a carrying value of approximately $4.3 million and a reserve for current expected credit losses of approximately $0.1 million.

Current wording

As described in Note 3, Loan #9 remains on non-accrual status and the Company will continue to cease further recognition of income until such events of default are cured or obligations are repaid. As of December 31, 2024, Loan #9 is held on the consolidated balance sheet as a loan held for investment – related party with a carrying value of approximately $16.4 million and a reserve for current expected credit losses of approximately $1.2 million.

Previous wording

The increase in interest income was driven by the $12.7 million increase in principal outstanding, as well as the increase in the Prime rate of 100 basis points during the year. The Prime rate increase impacted approximately 80.5% of the Company’s loans, which bear a floating rate as of December 31, 2023. Additionally, we recognized approximately $3.5 million of interest income from prepayment fees and acceleration of original issue discounts and other upfront fees during the year ended December 31, 2023, as compared to $1.2 million for the year ended December 31, 2022.

Current wording

Gross interest income decreased by approximately $0.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease in interest income is partially driven by the decrease in the Prime rate of 100 basis points during the year from 8.50% to 7.50%, which impacted the approximately 62.1% of the Company’s aggregate loan portfolio, which bears a floating rate as of December 31, 2024. Additionally, we recognized approximately $3.2 million of interest income from prepayment fees and acceleration of original issue discounts and other upfront fees during the year ended December 31, 2024, as compared to $3.5 million for the year ended December 31, 2023, contributing to $0.3 million of the decline. Additionally, the weighted average YTM IRR on our portfolio decreased from 19.4% to 17.2% during the year, as a result of certain re-pricing amendments relating to de-risking of our portfolio and the impact of the 100 basis point prime rate decline on our floating rate portfolio. The impact of the declining yield was offset by the increase in outstanding principal balance of our portfolio which increased to $410.2 million as of December 31, 2024 from $355.7 million as of December 31, 2023.

Previous wording

Stock based compensation increased as a result of the grant of 323,452 restricted stock awards to employees of our Manager during the year ended December 31, 2023, for which expense is recognized ratably over the vesting period.

Current wording

Stock based compensation increased by approximately $1.6 million as a result of a full year of expense recognition on the grant of 323,452 restricted stock awards granted to employees of our Manager during the year ended December 31, 2023, as well as an additional 187,335 of restricted stock awards granted during the year ended December 31, 2024. Stock based compensation expense is recognized ratably over the vesting period.

Previous wording

As of December 31, 2023 and 2022, greater than 80% of the portfolio bears a floating rate based on the Prime Rate. The Prime rate increased 100 basis points in 2023, as compared to 425 basis points in 2022, indicating a more stabilized credit market in 2023 compared to 2022. The significant upward movement in benchmark interest rates during 2022 contributed to a greater change in the probability of default when compared to 2023, and contributed to the decrease in the provision year over year.

Current wording

As of December 31, 2024 and 2023, greater than 60% of the portfolio bears a floating rate based on the Prime Rate. The Prime rate decreased 100 basis points in 2024, as compared to an increase of 100 basis points in 2023, indicating a more stabilized credit market in 2024 compared to 2023. The upward movement in benchmark interest rates during 2023 contributed to a greater change in the probability of default when compared to 2024, and contributed to the decrease in the provision year over year.

Previous wording

Changes in portfolio risk composition resulting from principal paydowns and new fundings also contributed to the decrease, with reserves on new 2023 originations representing a smaller portion of the reserve than loans originated in prior years. As of December 31, 2023 approximately 68.9% of our loans carry a risk rating of "1" or 2", an increase when compared to 62.6% as of December 31, 2022.

Current wording

Changes in portfolio risk composition resulting from principal paydowns and new fundings also contributed to the decrease, with reserves on new 2024 originations representing a smaller portion of the reserve than loans originated in prior years. As of December 31, 2024, approximately 71.2% of our loans carry a risk rating of "1" or 2", an increase when compared to 68.9% as of December 31, 2023.

Previous wording

The current expected credit loss reserve represents approximately 140 basis points of our aggregate loan commitments held at carrying value of approximately $5.0 million. The liability is based on the unfunded portion of loan commitments over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion. We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan.

Current wording

The current expected credit loss reserve represents approximately 105 basis points of our aggregate loan commitments held at carrying value of approximately $4.3 million. The liability is based on the unfunded portion of loan commitments over the full contractual period over which we are exposed to credit risk through a current obligation to extend credit. Management considered the likelihood that funding will occur, and if funded, the expected credit loss on the funded portion. We continuously evaluate the credit quality of each loan by assessing the risk factors of each loan.

Previous wording

As of December 31, 2023 and 2022, our portfolio included 27 and 22 loans held for investment of approximately $353.6 million and $339.3 million at carrying value, respectively, prior to the reserve for current expected credit losses. The aggregate originated commitment under these loans was approximately $378.8 million and $351.4 million and outstanding principal was approximately $355.7 million and $343.0 million as of December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, our loan portfolio had a weighted-average yield-to-maturity internal rate of return (“YTM IRR”) of 19.4% and 19.7%, respectively, and was substantially secured by real estate and, with respect to certain of our loans, substantially all assets of the borrowers and certain of their subsidiaries, including equipment, receivables, and licenses. YTM IRR is calculated using various inputs, including (i) cash and paid-in-kind (“PIK”) interest, which is capitalized and added to the outstanding principal balance of the applicable loan, (ii) original issue discount (“OID”), (iii) amortization, (iv) unused fees, and (v) exit fees. Certain of our loans have extension fees, which are not included in our YTM IRR calculations, but may increase YTM IRR if such extension options are exercised by borrowers.

Current wording

As of December 31, 2024 and 2023, our portfolio included 30 and 27 loans held for investment of approximately $402.5 million and $353.6 million at carrying value, respectively, prior to the reserve for current expected credit losses. The outstanding principal was approximately $404.7 million and $355.7 million as of December 31, 2024 and 2023, respectively. As of December 31, 2024 and 2023, our loan portfolio had a weighted-average yield-to-maturity internal rate of return (“YTM IRR”) of 17.2% and 19.4%, respectively, and was substantially secured by real estate and, with respect to certain of our loans, substantially all assets of the borrowers and certain of their subsidiaries, including equipment, receivables, and licenses. YTM IRR is calculated using various inputs, including (i) cash and paid-in-kind (“PIK”) interest, which is capitalized and added to the outstanding principal balance of the applicable loan, (ii) original issue discount (“OID”), (iii) amortization, (iv) unused fees, and (v) exit fees. Certain of our loans have extension fees, which are not included in our YTM IRR calculations, but may increase YTM IRR if such extension options are exercised by borrowers.

Previous wording

As of December 31, 2023 and 2022, approximately 80.5% and 83.1%, respectively, of our portfolio was comprised of floating rate loans that pay interest at the Prime Rate plus an applicable margin and were subject to a Prime Rate floor. The Prime Rate was 7.50% as of December 31, 2022, and increased to 8.50% as of December 31, 2023. The table below summarizes our portfolio as of December 31, 2023:

Current wording

The table below summarizes our portfolio as of December 31, 2024:

Previous wording

As of May 1, 2023, Loan #9 was placed on non-accrual status and continues to be on non-accrual as of December 31, 2023. Loan #9 is included on the consolidated balance sheet as a loan held for investment – related party (Note 7).

Current wording

As of May 1, 2023, Loan #9 was placed on non-accrual status and remains on non-accrual as of December 31, 2024. Loan #9 is included on the consolidated balance sheet as a loan held for investment – related party (Note 9). This loan had an original maturity date of June 30, 2024 and is included in amounts past due in the tables included in Note 3 to the consolidated financial statements.

Previous wording

Weighted average remaining life is calculated based on the carrying value of the loans as of December 31, 2023 and 2022, respectively.

Current wording

(1) Weighted average remaining life is calculated on the carrying value of the loans as of December 31, 2024 and 2023, respectively.

Previous wording

As a commercial mortgage real estate investment trust, we believe the key financial measures and indicators for our business are Distributable Earnings, Adjusted Distributable Earnings, book value per share, and dividends declared per share.

Current wording

As a commercial mortgage real estate investment trust, we believe the key financial measures and indicators for our business are Distributable Earnings, book value per share, and dividends declared per share.

Previous wording

depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period; provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) provision for current expected credit losses and (v) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors. We define Adjusted Distributable Earnings, for a specified period, as Distributable Earnings excluding certain non-recurring organizational expenses (such as one-time expenses related to our formation and start-up).

Current wording

In addition to using certain financial metrics prepared in accordance with GAAP to evaluate our performance, we also use Distributable Earnings to evaluate our performance. Distributable Earnings is a measure that is not prepared in accordance with GAAP. We define Distributable Earnings as, for a specified period, the net income (loss) computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) depreciation and amortization, (iii) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period; provided that Distributable Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, (iv) provision for current expected credit losses and (v) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors.

Previous wording

We believe providing Distributable Earnings and Adjusted Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to stockholders in assessing the overall performance of our business. As a REIT, we are required to distribute at least 90% of our annual REIT taxable income and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of such taxable income. Given these requirements and our belief that dividends are generally one of the principal reasons that stockholders invest in our common stock, we generally intend to attempt to pay dividends to our stockholders in an amount equal to our net taxable income, if and to the extent authorized by our Board. Distributable Earnings is one of many factors considered by our Board in authorizing dividends and, while not a direct measure of net taxable income, over time, the measure can be considered a useful indicator of our dividends.

Current wording

We believe providing Distributable Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to stockholders in assessing the overall performance of our business. As a REIT, we are required to distribute at least 90% of our annual REIT taxable income and to pay tax at regular corporate rates to the extent that we annually distribute less than 100% of such taxable income. Given these requirements and our belief that dividends are generally one of the principal reasons that stockholders invest in our common stock, we generally intend to attempt to pay dividends to our stockholders in an amount equal to our net taxable income, if and to the extent authorized by our Board. Distributable Earnings is one of many factors considered by our Board in authorizing dividends and, while not a direct measure of net taxable income, over time, the measure can be considered a useful indicator of our dividends.

Previous wording

Distributable Earnings and Adjusted Distributable Earnings should not be considered as substitutes for GAAP net income. We caution readers that our methodology for calculating Distributable Earnings and Adjusted Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our reported Distributable Earnings and Adjusted Distributable Earnings may not be comparable to similar measures presented by other REITs.

Current wording

Distributable Earnings should not be considered as substitutes for GAAP net income. We caution readers that our methodology for calculating Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our reported Distributable Earnings may not be comparable to similar measures presented by other REITs.

Previous wording

The following table provides a reconciliation of GAAP net income to Distributable Earnings and Adjusted Distributable Earnings (in thousands, except per share data):

Current wording

The following table provides a reconciliation of GAAP net income to Distributable Earnings (in thousands, except per share data):

Previous wording

The book value per share of our common stock as of December 31, 2023 and 2022 was approximately $14.94 and $14.86, respectively.

Current wording

The book value per share of our common stock as of December 31, 2024 and 2023 was approximately $14.83 and $14.94, respectively.

Previous wording

As of December 31, 2023 and 2022, all of our cash was unrestricted and totaled approximately $7.9 million and $5.7 million, respectively. We believe that our cash on hand, capacity available under our Revolving Loan, and cash flows from operations for the next twelve months will be sufficient to satisfy the operating requirements of our business through at least the next twelve months. The sources of financing for our target investments are described below.

Current wording

As of December 31, 2024 and 2023, all of our cash was unrestricted and totaled approximately $26.4 million and $7.9 million, respectively. We believe that our cash on hand, capacity available under our Revolving Loan, and cash flows from operations for the next twelve months will be sufficient to satisfy the operating requirements of our business through at least the next twelve months. The sources of financing for our target investments are described below.

Previous wording

On December 16, 2021, CAL entered into an amended and restated Revolving Loan agreement (the “First Amendment and Restatement”). The First Amendment and Restatement increased the loan commitment from $10,000,000 to $45,000,000 and decreased the interest rate, from the greater of the (1) Prime Rate plus 1.00% and (2) 4.75% to the greater of (1) the Prime Rate plus the applicable margin and (2) 3.25%. The applicable margin is derived from a floating rate grid based upon the ratio of debt to equity of CAL and increases from 0% at a ratio of 0.25 to 1 to 1.25% at a ratio of 1.5 to 1. The First Amendment and Restatement also extended the maturity date from February 12, 2023 to the earlier of (i) December 16, 2023 and (ii) the date on which the Revolving Loan is terminated pursuant to the terms of the Revolving Loan agreement. We have the option to extend the initial term for an additional one-year term, provided no events of default exist and we provide the required notice of the extension pursuant to the First Amendment and Restatement. We incurred debt issuance costs of $859,500 related to the First Amendment and Restatement, which were capitalized and are subsequently being amortized through maturity.

Current wording

As of December 31, 2024, the Company's secured revolving credit facility (the “Revolving Loan”) has aggregate commitments of $110.0 million which may be increased to $150.0 million pursuant to its accordion feature. The Revolving Loan bears interest, payable in cash in arrears, at a per annum rate equal to the greater of (1) the Prime Rate plus the applicable margin and (2) 3.25%. The applicable margin is derived from a floating rate grid based upon the ratio of debt to equity of CAL and increases from 0% at a ratio of 0.25 to 1 to 1.25% at a ratio of 1.5 to 1. The Revolving Loan has a maturity date of June 30, 2026.

Previous wording

The Revolving Loan provides for certain affirmative covenants, including requiring us to deliver financial information and any notices of default, and conducting business in the normal course. Additionally, we must comply with certain financial covenants including: (1) maximum capital expenditures of $150,000, (2) maintaining a debt service coverage ratio greater than 1.35 to 1, and (3) maintaining a leverage ratio less than 1.50 to 1. As of December 31, 2023, we were in compliance with all financial covenants with respect to the Revolving Loan.

Current wording

The Revolving Loan provides for certain affirmative covenants, including requiring us to deliver financial information and any notices of default, and conducting business in the normal course. Additionally, the Company must comply with certain financial covenants including: (1) maximum capital expenditures of $150,000, (2) maintaining a debt service coverage ratio greater than 1.35 to 1, and (3) maintaining a leverage ratio less than 1.50 to 1. As of December 31, 2024, the Company is in compliance with all financial covenants with respect to the Revolving Loan.

Previous wording

For the year ended December 31, 2023, we had net borrowings of $8.0 million against the Revolving Loan. As of December 31, 2023, we had $34.0 million available and $66.0 million outstanding under the Revolving Loan (Note 6).

Current wording

For the year ended December 31, 2024, we had net repayments of $11.0 million against the Revolving Loan. As of December 31, 2024, we had $55.0 million available and $55.0 million outstanding under the Revolving Loan. Refer to Note 8 of the consolidated financial statements for additional information.

Previous wording

On June 20, 2023, the Company entered into an At-the-Market Sales Agreement (the “Sales Agreement”) with BTIG, LLC, Compass Point Research & Trading, LLC and Oppenheimer & Co. Inc. (each a “Sales Agent” and together the “Sales Agents”) under which we may, from time to time, offer and sell shares of common stock, having an aggregate offering price of up to $75.0 million. Under the terms of the Sales Agreement, we have agreed to pay the Sales Agents a commission of up to 3.0% of the gross proceeds from each sale of common stock sold through the Sales Agents. Sales of common stock, if any, may be made in transactions that are deemed to be “at-the-market” offerings, as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

Current wording

On June 20, 2023, the Company entered into an At-the-Market Sales Agreement (the “Sales Agreement”) with BTIG, LLC, Compass Point Research & Trading, LLC and Oppenheimer & Co. Inc. (each a “Sales Agent” and together the “Sales Agents”) under which the Company may, from time to time, offer and sell shares of common stock, having an aggregate offering price of up to $75.0 million. Under the terms of the Sales Agreement, the Company has agreed to pay the Sales Agents a commission of up to 3.0% of the gross proceeds from each sale of common stock sold through the Sales Agents. Sales of common stock, if any, may be made in transactions that are deemed to be “at-the-market” offerings, as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended (the “Securities Act”).

Previous wording

For the years ended December 31, 2023 and 2022, we reported “Net cash provided by operating activities” of approximately $28.4 million and $17.0 million, respectively. Net cash provided by operating activities increased approximately $11.4 million, primarily attributable to an increase in net income over the comparable period of approximately $6.4 million, a change in the interest reserve for applied interest payments of approximately $13.0 million, redemption of debt securities of $2.5 million and an increase in interest receivable of approximately $1.2 million. These changes were offset by the purchase of $3.2 million of debt securities at fair value, an increase in PIK interest of approximately $2.5 million, a decrease in management and incentive fees payable of approximately $2.5 million, a decrease in current expected credit losses of approximately $2.9 million, an increase in stock based compensation of approximately $1.0 million, a decrease in related party net payable of approximately $0.7 million, $0.1 million in unrealized gain relating to the purchase of debt securities at fair value, and $0.1 million in realized gain relating to the purchase of debt securities over the comparable period.

Current wording

For the years ended December 31, 2024 and 2023, we reported “Net cash provided by operating activities” of approximately $23.2 million and $28.4 million, respectively. Net cash provided by operating activities decreased approximately $5.3 million, primarily attributable to a decrease in net income over the comparable period of approximately $1.7 million, a decrease in current expected credit losses of approximately $0.6 million, a decrease in interest receivable of approximately $0.5 million, a decrease in related party receivables of $3.3 million, a decrease in related party payables of 0.7 million, a decrease in redemption of debt securities of $1.6 million and a decrease in management and incentive fees payable of approximately $0.4 million. These changes were offset by a change in the interest reserve of approximately $4.0 million, a decrease in PIK interest of approximately $0.3 million, an increase in stock based compensation of approximately $1.6 million, $0.1 million in unrealized gain relating to the purchase of debt securities at fair value, and $0.1 million in realized gain relating to the purchase of debt securities over the comparable period.

Previous wording

For the years ended December 31, 2023 and 2022, we reported “Net cash provided used in investing activities” of $1.9 million and $125.2 million, respectively.

Current wording

For the years ended December 31, 2024 and 2023, we reported “Net cash used in investing activities” of $39.3 million and $1.9 million, respectively.

Previous wording

For the year ended December 31, 2022, cash outflows primarily related to $149.6 million used for the origination and funding of loans held for investment, partially offset by $6.7 million of cash received from the sales of loans and $17.7 million of cash received from the principal repayment of loans held for investment.

Current wording

For the year ended December 31, 2024, cash outflows primarily related to $160.8 million used for the origination and funding of loans held for investment and loans at fair value, partially offset by $19.0 million of cash received from the sale of loans and $102.5 million of cash received from the principal repayment of loans held for investment.

Previous wording

For the year ended December 31, 2022, cash inflows of approximately $4.5 million related to proceeds received from the underwriters’ partial exercise of their over-allotment option in connection with our initial public offering and $58.0 million related to draw downs on our Revolving Loan, partially offset by approximately $28.2 million in dividends paid, approximately $0.5 million in debt issuance costs paid, and approximately $0.1 million related to offering costs associated with our initial public offering.

Current wording

For the year ended December 31, 2024, cash inflows of approximately $39.6 million related to proceeds received from sales of our common stock through the ATM offering. Additionally, we had cash inflows related to draw downs on our Revolving Loan of $159.0 million, and inflows related to proceeds from notes payable of $50.0 million, which were offset by approximately $170.0 million in repayments on our Revolving Loan, approximately $41.6 million in dividends paid, approximately $1.1 million in debt issuance costs paid, and approximately $1.2 million in offering costs paid associated with the ATM offering.

Previous wording

In accordance with Accounting Standards Codification ("ASC") Topic ASC 326, Financial Instruments - Credit Losses ("ASC 326") we record a current expected credit loss reserve ("CECL Reserve") for our loans held for investment. The CECL Reserve is deducted from the gross carrying amount of the assets to present the net carrying value of the amounts expected to be collected on such assets. The Company estimates its CECL Reserve using among other inputs, third-party valuations, and a third-party probability-weighted model that considers the likelihood of default and expected loss given default for each individual loan based on the risk profile for approximately three years after which we immediately revert to use of historical loss data.

Current wording

We record a current expected credit loss reserve ("CECL Reserve") for our loans held for investment. The CECL Reserve is deducted from the gross carrying amount of the assets to present the net carrying value of the amounts expected to be collected on such assets. The Company estimates its CECL Reserve using among other inputs, third-party valuations, and a third-party probability-weighted model that considers the likelihood of default and expected loss given default for each individual loan based on the risk profile for approximately three years after which we immediately revert to use of historical loss data.

Previous wording

To estimate the historic loan losses relevant to our portfolio, we evaluate our historical loan performance, which includes zero realized loan losses since our inception of operations. Additionally, we analyzed our repayment history, noting we have limited “true” operating history, since the incorporation date of March 30, 2021. However, our Sponsor has had operations for the past three fiscal years and has made investments in similar loans that have similar characteristics, including interest rate, collateral coverage, guarantees, and prepayment/make whole provisions, which fall into the pools identified above. Given the similarity of the structuring of the credit agreements for the loans in our portfolio, management considered it appropriate to consider the past repayment history of loans originated by the Sponsor in determining the extent to which we should record a CECL Reserve.

Current wording

To estimate the historic loan losses relevant to the Company’s portfolio, the Company evaluates its historical loan performance, which includes zero realized loan losses since the inception of its operations. Additionally, the Company analyzed its repayment history, noting it has limited portfolio turnover from the date of our initial public offering. However, the Company’s Sponsor and its affiliates have had operations for the past three fiscal periods and have made investments in similar loans that have similar characteristics including interest rate, collateral coverage, guarantees, and prepayment/make whole provisions, which fall into the pools identified above. Given the similarity of the structuring of the credit agreements for the loans in the Company’s portfolio to the loans originated by its Sponsor, management considered it appropriate to consider the past repayment history of loans originated by the Sponsor and its affiliates in determining the extent to which a CECL Reserve shall be recorded.