Sachem Capital Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: We closed a $100 million senior secured notes offering due June 2030, providing significant financial flexibility to repay obligations and support new loan originations, resulting in asset growth for the first time in five quarters.
  • Negative Sentiment: Total revenue declined to $10.8 million from $15.1 million year-over-year, driven by materially lower net new loan originations and elevated non-performing loans.
  • Negative Sentiment: We have a concentrated $50.4 million exposure to two non-accrual loans in Naples (13.1% of the portfolio, 42.1% of NPL), currently in mediation with a potential court-driven resolution expected.
  • Positive Sentiment: Our $41.2 million investments in Shem Creek Capital funds generated approximately $1 million in revenue this quarter, delivering an attractive low-risk double-digit yield and diversifying our portfolio.
  • Positive Sentiment: GAAP net income improved to $1.9 million ($0.02 per share) compared to a net loss last year, reflecting reduced credit loss provisions and lower financing costs.
AI Generated. May Contain Errors.
Earnings Conference Call
Sachem Capital Q2 2025
00:00 / 00:00

There are 7 speakers on the call.

Operator

Good day, and welcome to the Sachem Capital Corp. Second Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would like now to turn the conference over to Stephen Sweat, Investor Relations.

Operator

Please go ahead.

Speaker 1

Good morning, and thank you for joining Sachem Capital Corp. Second quarter twenty twenty five earnings conference call. On the call from Sachem Capital today is Chief Executive Officer, John Belano, CPA and Interim Chief Financial Officer, Jeff Valradin. This morning, the company announced its operating and financial results for the quarter ended 06/30/2025. The press release is posted on the company's website, www.sachemcapitalcorp.com.

Speaker 1

In addition, the company filed its Form 10 Q today, which can be accessed on the company's website as well as the SEC's website at www.sec.gov. As a reminder, remarks made on today's conference call may include forward looking statements. Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. These include the risks detailed in our annual Form 10 ks and this Form 10 Q, such as those related to non performing loans, credit losses and market conditions. We do not undertake any obligation to update our forward looking statements in light of new information or future events.

Speaker 1

A more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our most recent SEC filings. During this call, the company will be discussing certain non GAAP financial measures. More information about these non GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are contained in our SEC filings. With that, I'll now turn the call over to John.

Speaker 2

Thank you, and thanks to everyone for joining us today. We will begin by reviewing our operating and financial results for the second quarter and provide an update on our strategic progress. During the quarter, we continued working towards growing our lending platform and taking decisive steps to strengthen our financial position. The efforts we made in late twenty twenty four and early this year to protect our balance sheet from non accretive financing positioned us well for continued stabilization in the second quarter. Building on the momentum from the first quarter, we remained focused on sourcing accretive capital to support our growth.

Speaker 2

We are pleased with the closing of our new $100,000,000 senior secured notes due June 2030. This new financing provides significant financial flexibility for Sachem, allowing us to repay existing obligations and accelerate the origination of new accretive loans resulting in asset growth for the first time in five quarters. Moving forward, we will continue to evaluate additional capital sources to further strengthen our liquidity position and grow our earning asset base. During the first half of the year, our portfolio continued to perform in line with expectations. While we still have approximately $119,600,000 gross unpaid principal balance of nonperforming loans in loans held for investment were $107,000,000 net compared to $107,600,000 gross and $94,300,000 net as of 03/31/2025.

Speaker 2

We continue to make meaningful progress working through these legacy assets, which we believe is critical to unlocking value and supporting future dividend growth. As of 06/30/2025, our book value was $2.54 per share, representing just a 1.2% decrease from 03/31/2025. Additionally, I'd like to provide a brief update on our significant exposure to a single borrower in the South Florida region, specifically two cross collateralized loans in Naples totaling approximately $50,400,000 as of 06/30/2025, representing 13.1% of our mortgage loan portfolio and 42.1% of our NPL balance, down from $55,000,000 at year end 2024, primarily due to proceeds from the sale of one of four completed condominium units earlier this year. There were no further unit sales in the second quarter, which aligns with the typically slow summer season for property transactions in the Naples area due to seasonal factors like heat and reduced buyer activity. As discussed in our prior calls, this legacy twenty twenty one investment has faced ongoing challenges, including permitting delays, hurricane impacts from two separate weather events, contractor and borrower performance issues, legal disputes with the City of Naples and further legal disputes with former capital partners that have led to bankruptcy proceedings to protect against junior liens.

Speaker 2

A judge ordered mediation event with the former capital partner lender holding a second mortgage position, which has been set aside multiple times by the bankruptcy court, but sustained through repetitive appeals is scheduled for this week. A positive outcome, we believe would clear the path forward for resolution, enabling the sale of the remaining completed units, completion of an additional four condo building on one site and development or sale of the other site. We remain in non accrual status on this loan, currently on an opportunity cost basis impacting monthly earnings by about $450,000 But we firmly believe the consolidated cross collateralized value remains in excess of outstanding net book UPB recorded on our balance sheet as of June 30. And we are optimistic about recovering capital as these resolutions progress. Last quarter, we mentioned the current development projects that our partner, Urbain New Haven, is helping us work through.

Speaker 2

To provide an update on this progress, our four Urbain real estate developments, one office with a residential component and three high end single family homes have made strong progress and are progressing on schedule. Our Westport office assets are 50% leased with GAAP rental income of approximately $1,300,000 annually. A portion of the Westport office asset was partitioned and is now approved for 10 residential homes, of which two are deemed affordable. The Westport residential component is approved and in the development planning stage. Our three high end homes in Coconut Grove, Florida are in various stages of construction with sales planned for late twenty twenty five and the 2026.

Speaker 2

We will continue to provide updates as these projects move towards completion. Additionally, at quarter end, we had invested in aggregate of $41,200,000 in projects managed by Shem Creek Capital through six investment funds. As a reminder, Shem Creek Capital is a commercial real estate finance platform that provides debt capital solutions to multifamily properties and allows us to participate in multifamily finance with strong borrower sponsorship. During the six months ended 06/30/2025, these investments generated approximately $3,000,000 in revenue, of which $1,000,000 was for the current quarter ending June 30, representing an attractive low risk double digit yield. Turning to the macro environment, our industry continues to navigate a challenging landscape of both obstacles and opportunities.

Speaker 2

The Federal Reserve has maintained a steady stance with rates remaining elevated. In the single family housing market, mortgage rates continue to dampen demand while existing home sales remain well below historical averages. Single family construction loan rates are at the highest levels in years with interest rates more than 10%. Existing homeowners in many instances are tied to their current home as COVID era interest rates make it unaffordable to move to larger or new homes. The demand for new construction is significant, but with higher construction costs, burdensome permitting regulations, coupled with higher interest rate charges, make a new home purchase unattainable for many.

Speaker 2

Fix and flip residential faces similar challenges as property value has increased, reducing developer margins. While these challenges create headwinds for the broader market, they also present meaningful opportunities for selective and experienced lenders like Sachem who can provide capital solutions where traditional financing remains constrained. As noted in our 10 Q, this environment has contributed to our revenue decline due to lower net originations and elevated NPLs and REO, but we are positioned to capitalize on it. Due to the ongoing constraints for many traditional lenders like banks, our pipeline of new origination opportunities continues to exceed our current capacity. We remain committed to our disciplined approach in evaluating new loans and maintaining our focus on single family and multifamily residential assets in markets with strong underlying fundamentals.

Speaker 2

Our underwriting standards continue to emphasize highly experienced and creditworthy sponsors. Our post COVID era loan originations continue to perform exceptionally well. As we move into the 2025, we remain confident in our strategic direction and our ability to capitalize on the opportunities ahead. With the addition of our new 100,000,000 financing facility, we have strengthened our balance sheet and enhanced our capacity to support growth initiatives. We will continue to focus on working through our legacy NPL assets and pursuing accretive growth opportunities that align with our risk management principles.

Speaker 2

We are very excited about the opportunity ahead, and I will now turn the call over to Jeff.

Speaker 3

Thank you, John. I'll walk through Sachem Capital's financial highlights for the second quarter ended 06/30/2025. Let's get started with revenues. Total revenue was $10,800,000 compared to $15,100,000 in the 2024. The change in revenue was primarily due to the cumulative effect on interest income from loans from materially lower net new loan origination over the last twelve months resulted in a year over year reduction in the unpaid principal balance of loans held for investment of $121,200,000 In addition to a currently elevated amount of non performing loans, loans held for sale and real estate owned.

Speaker 3

As a result, interest income from loans was $7,500,000 down from $11,800,000 partially offset by fee income of $1,800,000 and LLC income of 1,000,000 On the other hand, other income increased significantly, increasing by $05,000,000 This was driven by the recognition of rental income from one project in 2025, which contributed the $05,000,000 during this quarter. No such rental income was recorded in the prior quarter or year. Turning to operating expenses. Total operating costs and expenses for 2025 were $9,700,000 compared to $18,300,000 in the same quarter last year. The primary contributor to this decrease was the reduction in the provision for credit losses related to loans held for investment, which declined by $7,600,000 or 89.1 percent.

Speaker 3

This change was driven by a decrease in direct allowances related to foreclosures and non performing loans. Additionally, the change was due to reductions in interest and amortization expense of $800,000 compensation and employee benefits, provision for credit losses related to loans held for sale, and other expenses totaling $1,000,000 Overall, this reflects our progress in managing risks and reducing financing costs through debt repayments. The net results. This resulted in a GAAP net income of $1,900,000 and after payment of the Series A preferred stock dividends of $1,100,000 Net income attributable to common shareholders was $800,000 or $02 per share compared to net loss attributable to common shareholders of $4,100,000 or $09 per share for the 2024. Looking at our balance sheet position, total assets increased to $501,800,000 from $492,000,000 at 12/31/2024.

Speaker 3

Specific to our loan portfolio as of June 30, we held one hundred and thirty five first mortgage loans on residential and commercial real estate primarily for investment with an unpaid principal balance of 382,100,000.0 net of $2,600,000 in deferred loan fees. After an allowance for credit losses of $17,600,000 the net carrying value was 364,500,000.0 up from 356,600,000.0 at year end twenty twenty four, but down 121,200,000.0 from 485,700,000.0 a year ago due to lower net originations, elevated non performing assets and cumulative aggregate corporate debt reductions due to maturities. We also had $8,800,000 in loans held for sale, net $500,000 valuation allowance. This quarter, I wanted to add to this balance sheet discussion further financial context on our investments in Shem Creek funds. While our investment is carried at cost on our balance sheet in accordance with U.

Speaker 3

S. GAAP, our $41,200,000 members equity invested supports over $600,000,000 in gross loans held for investments by those funds. On a pro rata pro form a basis, our approximate 39% of the total funds members' equity participation represents approximately $234,000,000 of deployed levered capital. Total liabilities increased to $323,900,000 primarily due to the initial draw at closing of the private placement of five year senior secured notes due 06/11/2030. Our aggregate outstanding debt at 06/30/2025 was $315,500,000 Resulting total asset to total liability coverage is 1.55 times.

Speaker 3

Shareholders' equity stands at $177,900,000 resulting in a debt to equity ratio of 1.8 times or 64.6% debt and 35.4% equity. Looking at book value, as John mentioned earlier, our book value was stable this quarter and as expected. Book value per common share at 06/30/2025 was $2.54 compared to $2.64 at year end '24 and $2.57 at 03/31/2025. The year to date decrease of $0.10 is solely driven by the $4,200,000 net aggregate preferred and common dividends paid in excess of $2,800,000 in book net earnings. As the market continues to evolve and impact the entire industry, we do remain confident that the major issues are behind us as we look to return to growth.

Speaker 3

On liquidity and capital resources, cash and cash equivalents increased to $22,500,000 from $18,100,000 at the start of the year. For the first half of twenty twenty five, we have dispersed $81,000,000 in principal for draws on existing loans and new loans, while collecting $71,400,000 in repayments, leading to a net outflow of about $9,600,000 in loan related investing activities. This reflects our disciplined approach to originations in the challenging environment with collections helping maintain liquidity. Additionally, during the second quarter, we completed $100,000,000 private placement of five year senior secured notes that mature on 06/11/2030, and we drew an initial $50,000,000 at closing and can tap the remaining $50,000,000 at any time before 05/15/2026. We continue to maintain solid liquidity with a focus on prudent management of debt maturities and funding requirements.

Speaker 3

Regarding our $56,300,000 notes maturing this quarter at the September, We expect to be able to fully repay the notes from drawdowns on our existing credit facilities, primarily the recent senior secured notes facility and retained cash from principal repayments on our mortgage loan that would fully provide proceeds to repay and replace the maturing bond principal without requiring additional balance sheet and loan portfolio compression. As detailed in our 10 Q, our liquidity is supported by principal interest payments on loans, sales of real property and our credit facilities. On dividends, our Board regularly evaluates our dividend distribution policy on an ongoing basis, balancing our operational performance, federal tax requirements, and the importance of maintaining long term financial flexibility. We continue to monitor this closely amid our focus on MPL resolution and growth. As a reminder, going forward, the company has aligned in its intended timing of its common dividend and Series A preferred dividend declaration and payment thereof to occur in the months of March, June, September and December.

Speaker 3

I will now turn the call back to John for closing comments.

Speaker 2

Thanks, Jeff. We believe Sachem is positioned to be a leader in small balance real estate finance. We look forward to resolving our remaining NPLs to unlock capital for growth and accessing new sources of accretive capital to refill our loan pipeline. While our recovery is well underway, more time is needed to be fully back on track. We will continue to manage our business, grow book value and our dividend with the goal of producing value for our shareholders.

Speaker 2

Thank you. And we'll now open the call to questions from our analysts.

Operator

The first question is from the line of Chris Mueller with Citizens Capital Markets. Please go ahead.

Speaker 4

Hey, John, Jeff, thanks for taking the questions. And congrats on getting the notes offering done. It's nice to have that behind you guys. So I want to talk about some of the LLC investments. It looks like there was a dip in income there quarter over quarter.

Speaker 4

So I guess the question is what caused that dip? And what's the outlook for Urbain and Chem Creek in the back half of the year?

Speaker 2

Okay. Good morning, Chris. So Urbain, we've talked about in our just recent script read, we've got projects going on, one in Connecticut, three in Florida, that are in various stages of progress. Our building in Westport, Connecticut, is an office, a significant office building, It is 50% leased. We've talked about a $1,300,000 GAAP rental income for the year, which does provide a rate of return to Sachem.

Speaker 2

And then further, the efforts of Urbain Capital have they split off a section of the property to really build a residential community as part of the parcel. And that has significant upside to us. We're moving through the planning stages. So we do have approvals. We are now planning the development of the parcel.

Speaker 2

We expect that to occur in the next six to nine months. Unfortunately, these things take time. There is also some preliminary discussions of further leasing of the main office building from our significant tenant. Those discussions are ongoing. With respect to the properties in Florida, we have recently inspected those properties and they are moving along famously.

Speaker 2

We expect a, you know, I don't want to say a cash out event, but we expect a sales perhaps in the 2025 with further sales in the 2026 for the remaining two units. The buildings are of excellent quality. They are in Coconut Grove, Florida. They fit in with the revitalization and rebuild of the community. And we have a local well established builder handling the process with us.

Speaker 2

With respect to Shem Creek, with our Shem Creek investments, and you do know that we have a 20% ownership interest in the manager, our cash flows are subject to certain waterfalls with respect to the loans that we participate in. And in many cases, we know exactly how those are going to flow to us. But overall, we do maintain a double digit yield on our investments with Shem. They are excellent in terms of underwriting multifamily and workforce loan opportunities. And it's something that we can't handle here at Sachem because our cost of capital is just a bit too high to be effective in that lending space.

Speaker 2

So it's a way for us to get portfolio diversification with great sponsors, great underwriters. And we look forward to building our relationship with Shen over the coming years.

Speaker 4

Got it. That's very helpful. Sorry, go ahead.

Speaker 3

Chris, the one piece I would add on to John's commentary, just give you a couple of numbers behind it. The one, we've been getting return of capital on the Shem Creek, right? There's been continuing turnover in those assets. So there's when you look from year end through June 30, we've had about a $7,000,000 return of capital relative to just specifically invested in the funds and Shem Creek setting aside the manager. And as John mentioned, relative to the waterfalls, there was some timing difference that occurred between second, third, first quarter and second quarter.

Speaker 3

So, on the one aspect, I would not caution just annualizing the three months ended June 30, because there was a little bit of a twist. I would continue to focus in on the total Shem Creek investments relative to the funds, which is approximately $41,200,000 And our still current earnings on that is in that low double digit 10% to 12% return on that invested funds.

Speaker 4

Got it. That's very helpful. And then I guess on Urbain more specifically, what does the pipeline look for new projects there? Are they kind of at capacity with the existing book?

Speaker 2

Chris, you're going get me in a lot of trouble here. We are looking to build the Urbain pipeline. You may have heard me speak about this in prior calls, not so recently, but in prior calls, where we want to have our main projects rolling off our books every quarter. And that's going to require us to invest further dollars with them going forward. And we've had a bump in the road over the past year or so.

Speaker 2

'24 was difficult for us. So we've slowed down the pursuit of opportunities with Urbain. However, it is a topic of discussion every day. And we're looking to get back on that horse and begin building our portfolio with them again.

Speaker 4

Got it. Very helpful. And just one other one, if I could throw it out there. It looks like the REO was pretty stable in the quarter. Can you just give us some insight into that bucket?

Speaker 4

Were there sales and new additions? Or was REO activity pretty muted in the quarter?

Speaker 2

We are making significant progress working through the NPLs and the REO. Unfortunately, the process takes a whole lot of time and a whole lot of effort. Jeff, if you would like to share some of the improvements we've made during the quarter and expected improvements in the third quarter, that would be a good time to talk about that.

Speaker 3

And Chris, relative to REO specifically, there is a footnote on Page 33, actually in the MD and A section that actually gives you an asset by asset breakdown of REO, and it indicates when it was actually, you know, the it was added into the portfolio. So year to date, you know, there's been movement while the REO 18,000,000 18 and a half million rounded, you know, in change looks flat. You know, we've added 2,300,000.0 we've, taken away. There's also another footnote. I was trying to find it exactly, where we reconcile the the movement in REO.

Speaker 3

That is in the footnotes, and I can find that one specifically for you here in a minute. Now we'll take the quick opportunity relative to just, you know, when you kinda look at NPLs and loans held for investment, the loans held for sale and REO, on an aggregate basis, like, since June 30, you know, the the resolutions we've been talking about are focused on the resolutions, and they the resolutions that are continuing to accelerate, even though I'll call it net, we believe we're at the peak, as of June 30, But post June 30, we've had resolutions in that category of approximately $5,000,000 And before we get through the end of just third quarter, we're expecting an additional resolution, I'll call it, in the category of NPLs, loans held for sale and REO of another $12,500,000 We really do expect the velocity of resolutions to pick up in the second half of the year with all the work and focus we've had on it.

Speaker 4

Got it. That's all very helpful. Thanks for taking the questions.

Speaker 2

Thanks, Chris.

Operator

The next question is from the line of Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Speaker 5

Hey, guys. Hey, the Naples loan, what's the amount, please?

Speaker 2

The principal balance?

Speaker 5

Yes, please.

Speaker 2

I think it's 44,000,000.

Speaker 5

If I understand your comments earlier, John, that you think you potentially could see a court driven resolution this week?

Speaker 2

We have a mediation event scheduled for tomorrow. And we have ongoing discussions with our borrower. And as we talked about in our script reading, we have a second mortgage holder that is being difficult. And they are in a terrible position and they're fighting for their life. And this thing should be coming to an end relatively quickly.

Speaker 2

But again, you know, when your hands are in the judge's hands, it takes time. So, are optimistic and we are working it towards the exit. It's just taking longer than we would like. And as we discussed, it does cost it's hitting earnings, right? It hits earnings about $450,000 a month.

Speaker 2

It's painful.

Speaker 5

Okay. So, there is the pathway for some sort of resolution where there's a restructuring which could be a third quarter realized gain or loss, I mean, and something along those lines, but something is likely to happen on this.

Speaker 2

We are hoping for the best. Are working, like I said, we're working our way towards the door. It's finding a middle ground with all parties where we can proceed and unlock our capital.

Speaker 5

Gotcha. And then if I'm correct that this counts for roughly one third of your non accruals in the quarter.

Speaker 2

Is that correct? That's correct.

Speaker 3

Okay. And then You've gotta take it Chris, I've two were two loans within the Naples to the same borrower. And so as you'll see disclosed, there's a 50,400,000.0 net book value on there, and that 50.4 is $50.50.0.4 of a 119,000,000. So, yes, a little more than k. Okay.

Speaker 5

And then a broader thing, I noticed that your reserve your allowance reserves as a percentage of your mortgages has gone down. It looks like your non accrual volumes have gone down. I mean, looks like you guys have sort of I wouldn't say you stabilized in terms of the asset quality trends putting aside Naples for a second, just in the second quarter results. Is that a fair read of it?

Speaker 2

That is fair. There is a cleansing of the portfolio that's been ongoing. We've talked about this prior. We're not big fans of extend and pretend. Any loan that's coming up for renewal, you've got to meet our updated underwriting guidelines.

Speaker 2

If not, it ends up in a non PL situation. So we're doing our very best to cleanse the portfolio. Like I've said, it's quite painful, but it's what we want to show our shareholders that we're managing the portfolio the best we can. We're trying to manage the assets and the money we have invested. And we're trying to push some of these weaker loans to the door as quickly as we can.

Speaker 5

Okay, the final question, the leverage ratios are quite high. Should we start seeing more loan sales and just trying to process originate loans and then sell them? Is that gonna be more of an activity?

Speaker 2

We have no loan sales plan. I mean, do have some what we have loans for sale on our balance sheet, loans held for sale, but we are not planning a significant sale like you saw in the '24.

Speaker 5

Okay. Thank you. Talk to you guys later. Thanks,

Speaker 3

Chris.

Operator

The final question is from the line of Gurav Mehta with Alliance Global Partners. Please go ahead.

Speaker 6

Thank you. Good morning. I wanted to get some more clarity on the second tranche of the $100,000,000 note offering. So the withdrawal of that tranche between now and I guess May '26 that depends on new loan origination opportunities that you guys see during this time?

Speaker 2

Gaurav, that is correct. And I want to add this as well. As you know, we have notes coming due September 30 of this quarter, of the third quarter. Funds are available for that through our Churchill facility, cash on hand, as well as our Needham credit facility. So, undrawn $50,000,000 is available for our notes, or it could be for growth, but we're going to see how the quarter progresses, taking into account loan payoffs and things like that.

Speaker 6

Okay. And I guess during this quarter, I don't know if I missed you in your comments, did you provide a number on new loan origination and loan payoffs?

Speaker 3

Yes. We did. We have a you know, that is in, I'll call it, the opening section of the MD and A. For the quarter, I was just trying to get to my specific numbers. For the quarter, we originated or put out new loan disbursements relative to either draws on existing loans or brand new loans of $39,700,000 and loans repaid was 23,700,000.0

Speaker 6

Okay. And then lastly, maybe on the yields on the new loans that you guys are seeing, is it still twelve and two? Or are you guys seeing a different number in the market?

Speaker 2

Grave, we're doing our best to stay with twelve and two. We're not able to compete in multifamily finance with those rates, but we're doing our best to stay with twelve and two. And on a rare occasion, we'll go down to 11. We're getting into below 10 in any case.

Speaker 6

Okay. Thank you. That's all I had.

Speaker 2

Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Thank you.

Speaker 2

Thanks everyone for joining us today. We look forward to informing you next quarter.

Operator

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

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