Sachem Capital Q1 2025 Earnings Call Transcript

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May 1, 2025

There are 3 speakers on the call.

Operator

As a reminder, this conference is being recorded. It is now my pleasure to hand it over to Investor Relations. Thank you. You may begin.

Speaker 1

Good morning, and thank you for joining Capital Corp. First Quarter twenty twenty five Earnings Conference Call. On the call from Sachin Capital today is Chief Executive Officer, John Vilano, CPA and Interim Chief Financial Officer, Jeff Walraven. This morning, the company announced its operating and financial results for the quarter ended 03/31/2025. The press release is posted on the company's website, www.sagencapitalcorp.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. We do not undertake any obligation to update our forward looking statements in light of new information or future events. For 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.

Speaker 1

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 turn the call over to John. Thank you, and thanks to everyone for joining us today. We will begin by reviewing our operating and financial results for the first quarter and discuss the future as we continue working towards growing our lending platform and restoring bottom line profits to the company.

Speaker 1

The difficulties of last fall, coupled with our desire to protect our balance sheet from non accretive finance, set the stage for stability this quarter and further illuminated the path of our recovery into the second quarter of twenty twenty five. We continue to search for accretive capital to build our business. As of today, we have two signed term sheets with well respected lenders. We will keep you informed of our progress on these financing transactions. In 2025, our portfolio is now performing as expected.

Speaker 1

As stated during our last earnings call, our post COVID loan fundings are performing seamlessly. While we still have 153,000,000 of nonperforming loans or 124,000,000 of NPLs net compared to a hundred and 3,000,000 of nonperforming loans net as of 12/31/2024, but did not incur any material incremental markdowns during the quarter. The net increase in NPLs was due to our Naples Florida mortgage moving from performing to nonperforming during the quarter as well as other loans totaling 25,000,000 Further, significant progress has been made as we continue to work through all problem assets. We realized a significant part of our dividend growth plan is directly tied to unlocking our nonperforming loans. As of March 31, our book value stood at $2.57 per share, down less than 3% from year end 2024.

Speaker 1

Further, we have successfully diversified our business model and cash flow sources through two successful partnerships. These partnerships not only add stability to our income, but create opportunities for for further growth. Urbain New Haven brings expertise in real estate development and construction services and oversees our construction loan servicing and asset management. Additionally, they have added significant expertise to further enhance our underwriting guidelines as well as our construction service policies and procedures. Together, our target is to build a pipeline of development projects where we can better control risk and returns and patients can benefit from interest on invested capital and potential asset appreciation over time.

Speaker 1

As I mentioned on our last call, we currently have four urban real estate development projects underway, one in Westport, Connecticut and three in Coconut Grove, Florida. We will continue to provide updates as these projects advance towards completion and lease up. Second, Sun Creek Capital, a commercial real estate finance platform that provides debt capital solutions for multifamily, workforce housing, and industrial real estate owners, aligns with our focus on multifamily housing as a strong credit product, especially in the current high cost environment where producing new residential supply is increasingly challenging, and home ownership is less affordable. The Shenn partnership allows us to participate in multifamily finance with strong borrower borrower sponsorship while earning great risk adjusted returns. Prior to Shenn, this market was not available to us due to our elevated cost of capital.

Speaker 1

At 03/31/2025, we invested an aggregate of $51,400,000 in projects managed by Shem Creek, with six investment funds and the fund's manager. In the first quarter, these investments generated approximately $2,000,000 in revenue, representing an attractive low risk double digit yield. Turning to the macro environment. Our industry continues to face a wide range of headwinds. Ongoing tariff uncertainty has contributed to renewed volatility, financial mark, making cost projections and incremental capital sources less predictable.

Speaker 1

Further, many real estate construction projects will be affected by increased costs from materials and supplies originating from outside of The US. We do expect product shortages resulting from supply chain issues. Expectations are for interest rates to decline during 2025. However, rates remain elevated as the markets look for stability moving forward. While the volume of real estate transactions is gradually recovering, it's still well below the levels we saw in the immediate post pandemic period.

Speaker 1

Pricing for many property types and across many markets continues to trend downward as buyers struggle with high real estate costs and costly financing. Also, restrictive bank lending policies are still limiting the amount of capital our borrowers can access for takeout financing. While these challenges persist, they also create meaningful opportunities for Sage. Considering the constraints in the broader lending markets, our pipeline of new origination opportunities remain remains robust and well beyond what we have the capacity to take on today. We will continue to stay highly selective in pursuit of new loans, and we will remain focused on single family and multifamily residential assets in growing markets where market fundamentals remain strong.

Speaker 1

Our underwriting process continues to pursue highly experienced and creditworthy sponsors. As I stated earlier, our ability to work through the remaining $124,000,000 of net NPLs on our book can unlock significant capital to drive earnings and cash flow growth. Our success in this area will directly benefit our earnings and increase dividends to our shareholders. We will continue to seek incremental sources of accretive capital to strengthen our balance sheet and support further growth. We are very excited with the opportunity ahead, and I will now turn the call over to Jeff.

Speaker 1

Thank you, John. I'll walk you through Sachem Capital's financial highlights for the first quarter ended 03/31/2025. Starting with revenues, total revenue for the first quarter was $11,400,000 compared to $16,800,000 for the same period in 2024. The 31.9% decrease primarily reflects the cumulative effect of fewer loan originations over the past fifteen months, resulting in a compression in our earning unpaid principal loan balance portfolio alongside elevated levels of nonperforming loans and conversion of loans through foreclosure to real estate owned. On a positive note, income from our preferred membership in Shem Creek LLC investment earnings increased approximately 71.7% as compared to the first quarter of twenty twenty four.

Speaker 1

Turning to expenses. Total operating expenses were 10,400,000.0 down from $12,500,000 in the prior year's quarter, a 16.9% reduction. The primary drivers were lower interest amortization expenses due to the repayment of 58,200,000.0 in unsecured retail notes in 2024 as well as reductions in compensation and employee benefits and credit loss provisions. Net results, this resulted in GAAP net income of 900,000 and after payment of the Series A preferred stock dividends of $1,100,000 net loss attributable to common shareholders was 200,000.0 or 0¢ per share compared to 3,600,000.0 of income or 8¢ per share for the first quarter of twenty twenty four. On balance sheet position, total assets were 491,400,000.0, nearly flat compared to 492,000,000 at 12/31/2024.

Speaker 1

Total liabilities increased just slightly to 312,100,000.0, mainly due to higher repurchase agreements, partially offset by reductions in lines of credit and accounts payable. Our outstanding debt at March 31 was 306,000,000. This resulting in total asset to total liability coverage of 1.57 times. Our shareholders' equity stands at a hundred and 79,300,000.0, resulting in debt to equity ratio of 1.7 times or 62.3% debt and 37.7% equity. On book value, as John mentioned earlier, our book value was very stable in the quarter as expected.

Speaker 1

Book value per common share at 03/31/2025 was $2.57. This is down from $2.64 at year ended 2024. This $07 decrease was nearly solely driven by 3,500,000 in preferred and common dividends paid during the first quarter that is in excess of book net earnings. The stability of our book value demonstrates the work we continue to complete to resolve delinquencies, sell nonperforming loans and clear REO off our books. While the market continues to evolve, impacting the entire industry, we are confident that the major issues are behind us as we look to return to growth.

Speaker 1

On liquidity and capital resources, cash and cash equivalents increased to $24,400,000 from $18,100,000 at the start of the year. During the first quarter, we closed on a replacement credit facility with Needham Bank. This facility is nearly identical to the previous credit facility and provides for up to 50,000,000 of committed available liquidity for Station at an attractive interest rate, subject to an assigned and pledged borrowing base assets. We continue to maintain solid liquidity with a focus on prudent management of debt maturities and funding requirements. Specifically, with regard to our 56,000,000 in retail notes coming due in September, while we would expect to be able to fully repay the notes from drawdowns from our existing credit facilities and entertain cash on hand from principal repayments from our mortgage loans, we are in advanced stages of definitive document negotiation on two separate credit facilities, one of which will have committed term loan funds available to us that would provide proceeds to repay, replace the maturing bond principal, avoiding any additional balance sheet and loan portfolio compression.

Speaker 1

On dividends, I'll first note we declared and paid our first quarter twenty twenty five dividend during March of twenty twenty five. 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. As a reminder, going forward, the company has aligned the timing of its common dividend declarations and payments to be in line with the timing of our Series A preferred stock dividends, therefore occurring in March, June, September and December. I will now turn the call back to John for closing comments. Thanks, Jeff.

Speaker 1

We are excited with our recent performance and believe Sachin is positioned to be a market 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 ultimate goal to produce value for our shareholders. Thank you, and we will now open the call to questions from our analysts.

Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue.

Operator

The first question is from Gaurav Mehta from Alliance Global Partners. Please go ahead.

Speaker 2

Thank you. Good morning. I I wanted to follow-up on

Speaker 1

your comments around two term sheets with different lenders and and just wanted to

Speaker 2

get some details. So if you were to execute on those two term sheets, so that would provide funds to address the upcoming debt maturity, or would that provide more funds than than that to maybe allocate towards loan originations?

Speaker 1

Hi. Hi, Geralt. Good morning. The facility that you're talking about comes in two components. There's an initial funding and a delayed draw.

Speaker 1

The initial funding will provide some working capital for us to build our business. The second, the delayed draw will provide funds directly related to the payment of the unsecured notes in September.

Speaker 2

Okay. So it's it's not like a it won't be like an like a like a note. It's going to be like a current current line. Right?

Speaker 1

No. It it is a term note. A term note. Okay. Understood.

Speaker 1

For a one of Brooke, I'll add real quick, Brooke. One of one of the two is the term, as John just described, and we are we're reserving a portion of that to avoid balance sheet compression via the delayed draw. The other facility is a is a new facility similar to, like, a Churchill and others that would provide other growth on kind of really a direct direct match of use of the funds for growth assets. So there there is a there is a significant component of the two facilities that is related to give us expansionary growth, while a portion of the one is protection basically, protection against the from a compression perspective on the the reduction of the bond in September.

Speaker 2

Okay. Understood. Maybe on on the macro environment, you touched upon some headwinds in

Speaker 1

the market. I was wondering if you

Speaker 2

would maybe comment on what you guys saw in April in

Operator

in in

Speaker 2

the loan market as far as credit spreads and loan origination opportunities.

Speaker 1

Yeah. You know, and and you've heard me say this countless times. We are never at a loss of for opportunity. We have a significant pipeline. As we discussed, we have more opportunities than we have capital available.

Speaker 1

Seems to be the nature of our business. The significant pricing differences that we are noticing is single family and multifamily are commanding There is a push in in the world today where they are the most sought after asset class in our industry. So lenders are aggressive. With respect to mixed use mixed use development, you know, residential with a retail component on the First Floor, we're able to really maintain our standard pricing, which is twelve and two.

Speaker 1

12 12 percent interest, 2% origination. And if there's a construction component, we still need to get our construction service fee. And we expect to see further rate compression in the single family, multifamily space. Again, it's just the preferred asset class, and a good portion of the industry's capital is flowing into that area.

Speaker 2

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

Speaker 1

Thank you.

Operator

The next question is from Christopher Nolan from Ladenburg Thalmann. Please go ahead.

Speaker 1

Hey, guys. On the new facilities that you guys mentioned, are they fixed rate, or would you benefit if interest rates were cut? We would we would benefit if if rates are cut on one of the facilities. Our delayed draw facility will be a fixed rate. Great.

Speaker 1

And then what sort of advanced rates are you getting on these various facilities, including Churchill? You know, up until recently, Churchill was was kind of all over the board, and they they seem to have stabilized a bit. We are getting between 6070% advance rates. They are becoming a little more specific with asset type and quality. One of our potential facilities could have advanced rates up to 75 or 80%, which is very attractive to us, but it is a very specific asset class.

Speaker 1

It'll be resi and multifamily specifically. The delayed draw facility has a lot more flexibility with with Advance. You know, in our in our world, we're we're at 70% LTV. So, you know, we're getting much less than the amount needed to close these things. So, you know, we we have to maintain our liquidity to to do this.

Speaker 1

So we're basically getting, in most cases, 70% on 70. So, you know, it it sucks up our cash pretty quick, but it does give us a nice amount of leverage, and, of course, it does work with our with our loan covenants at one and a half times. And then what do all these change I mean, I know the baby bonds imposed, you know, leverage limits on you guys. You know, as those mature and pay off, should

Operator

we expect the leverage levels of

Speaker 1

the balance sheet to start to go up or stay around current levels? That that's an interesting question. You know, our new facilities, specifically one of our facilities, have a one and a half times asset coverage ratio. You know, Jeff, if you'd like to expand on that, it does look like we're gonna be tied to a one and a half times asset coverage ratio going forward. Yeah.

Speaker 1

Still for at the collateral level, it it as John mentioned, it's at a one and a half times. I mean, even when you do look at the baby bonds, the last you know, the the maturity of the baby bonds, we have the 09/30 maturity. Our next maturity is out at twelve twelve thirty one of twenty six. And then we have a first quarter, second quarter, and third quarter maturity in '27. So unless we were to do some kind of financing, you know, even just relative to the baby bonds, we have the one and a half times, you know, coverage on those bond debentures all the way out to June thirty of twenty seven.

Speaker 1

So, fans, an early payoff of, you know, or redemption of those funds. Okay. That's it for me. Thank you.

Operator

This concludes the question and answer session and today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Sachem Capital Q1 2025
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