Sachem Capital Corp. (SCCF) is a Connecticut-based real estate finance company that specializes in originating, underwriting, funding, servicing, and managing a portfolio of short-term, secured, non-bank loans, commonly known as "hard money" loans. The company's primary focus is on providing financing to small- and mid-scale real estate developers and investors, primarily in the northeastern and southeastern United States.

Financials

In the first quarter of 2024, Sachem Capital reported revenue of $17.2 million, a 17.0% increase from the $14.7 million generated in the same period of 2023. This growth was driven by a 15.1% increase in interest income from loans, which reached $12.6 million, as well as a 117.4% surge in income from partnership investments, which totaled $1.2 million. The company also saw a 68.1% rise in other income, which reached $1.2 million. However, the company experienced a 74.2% decrease in unrealized gains on investment securities, which fell from $0.7 million in the first quarter of 2023 to $0.2 million in the current period.

On the expense side, Sachem Capital's total operating costs and expenses increased by 30.7% to $12.5 million, primarily due to a significant 1,192.4% jump in the provision for credit losses related to loans, which reached $1.3 million. This increase was largely attributable to value declines in mortgages secured by commercial real estate. Additionally, the company saw an 8.7% rise in interest and amortization of deferred financing costs, which reached $7.5 million, as well as a 37.9% increase in general and administrative expenses and a 564.9% surge in other expenses.

Despite the challenges, Sachem Capital's net income attributable to common shareholders for the first quarter of 2024 was $3.6 million, or $0.08 per share, compared to $4.2 million, or $0.10 per share, in the same period of 2023, representing a 13.0% decrease.

Business Overview

Sachem Capital's loan portfolio is diversified across various geographic regions, with 47.1% of the portfolio located in New England, 33.6% in the South, 18.5% in the Mid-Atlantic, and 0.8% in the West as of March 31, 2024. The portfolio is also diversified by property type, with 49.7% in residential, 36.5% in commercial, 7.6% in pre-development land, and 6.2% in mixed-use properties.

The company's allowance for credit losses on its mortgage loan portfolio was $8.1 million as of March 31, 2024, compared to $7.5 million as of December 31, 2023. This increase was primarily driven by a $0.5 million provision for credit losses related to loans in the New England region.

Sachem Capital's balance sheet remains strong, with total assets of $626.5 million as of March 31, 2024, compared to $625.5 million as of December 31, 2023. The company's total shareholders' equity stood at $237.4 million as of March 31, 2024, up from $230.1 million as of December 31, 2023, reflecting a 3.2% increase.

Liquidity

The company's liquidity position remains robust, with cash and cash equivalents of $18.4 million as of March 31, 2024, up from $12.6 million as of December 31, 2023. Sachem Capital also has access to various sources of financing, including a $200 million master repurchase financing facility with Churchill MRA Funding I LLC, a $65 million revolving credit facility with Needham Bank, and a margin loan account with Wells Fargo.

Outlook

Looking ahead, Sachem Capital remains optimistic about the continued viability of its business model, despite the challenges posed by the high-interest-rate environment, geopolitical concerns, and increased competition from private lenders. The company believes that the ongoing dislocation and turmoil in the credit markets and the banking sector will continue to fuel significant demand for its mortgage products, particularly among small- and mid-scale real estate developers with good collateral.

To drive additional operational excellence, Sachem Capital is committed to continuously reviewing, assessing, and upgrading its existing operational processes, from workflows and employee roles/responsibilities to decision trees and data collection forms. The company's goal is to continue growing its mortgage loan portfolio and increasing its loan profitability, while maintaining or improving its existing underwriting and loan criteria.

Sachem Capital's senior management team, led by John Villano, the chief executive officer, president, and interim chief financial officer, has a proven track record of navigating the company through various market conditions. The company's access to capital, strong balance sheet, and liquidity position provide it with the resources necessary to capitalize on the evolving real estate finance landscape and deliver value to its shareholders.

Conclusion

Overall, Sachem Capital's performance in the first quarter of 2024 reflects the company's resilience and adaptability in the face of a challenging market environment. With its focus on disciplined underwriting, operational excellence, and strategic financing, Sachem Capital is well-positioned to continue its growth trajectory and capitalize on the opportunities presented by the evolving real estate finance landscape.