Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sachem Capital Corp (SACH, Financial) generated approximately $15.1 million in revenue for the second quarter of 2024.
- The company produced $2.1 million in fee income from loans, despite reduced origination volume.
- Sachem Capital Corp (SACH) efficiently managed non-performing loans, adding only $1.6 million in REO in the first half of 2024.
- The company generated a net gain of approximately $264,000 from REO sales during the period.
- Sachem Capital Corp (SACH) has a geographically diverse loan portfolio covering 16 states, with a focus on growth markets in the Southeast and stable markets in the Northeast.
Negative Points
- Total operating costs and expenses for the second quarter of 2024 were approximately $18.5 million, significantly higher than the $10.3 million in the prior-year quarter.
- The company recorded a net loss attributable to common shareholders of approximately $4.1 million for the second quarter of 2024, compared to a net income of $4.8 million in the prior-year period.
- Sachem Capital Corp (SACH) added an additional CECL provision for credit losses of approximately $8.5 million due to ongoing challenges in the commercial real estate market.
- Loan originations were down, and the company is holding cash on hand due to the challenging capital markets environment.
- The company has $106.9 million in loans in non-accrual status, including 50 loans in foreclosure, representing approximately $73.1 million of outstanding principal balance.
Q & A Highlights
Highlights from Sachem Capital Corp (SACH) Q2 2024 Earnings Call
Q: Can you provide more details on your plans to refinance the $34.5 million loan due in December?
A: John Villano, CEO: As of June 30, we had $10.5 million in cash, and currently, we have almost $30 million in cash on hand. This does not include liquidity from our credit facilities or repurchase agreements, so we are in good shape to handle the December maturity.
Q: What are the current interest rates if you need to issue new debt?
A: John Villano, CEO: We recently attempted an institutional note offering, but the rates were not accretive to our business model. We are avoiding raising inefficient debt and prefer to shrink our balance sheet and wait for better opportunities in the debt markets.
Q: Can you provide more color on the credit loss reserves for the quarter?
A: Nick Marcello, CFO: The $8.5 million increase in reserves includes about $5 million to $5.5 million for non-performing loans and an additional $3 million applied across the general reserve bucket. This reflects asset valuation declines and the challenging market conditions for our borrowers.
Q: What is your current cash position and how does it impact your strategy?
A: John Villano, CEO: We have approximately $30 million in cash. We are considering whether to pay off the December notes early to save on interest. Marshaling cash does impact bottom-line performance, but it positions us well for future opportunities.
Q: What is your outlook on non-accrual loans and foreclosures?
A: John Villano, CEO: We are taking a month-by-month approach due to ongoing uncertainties. While we have seen some loans fully paid off, we are still at risk with appraisals and borrowers facing challenges. We expect 2025 to be a better time for growth.
Q: How do you view the dividend policy given the current industry conditions?
A: John Villano, CEO: We have scaled down the dividend to conserve cash. We are paying out taxable earnings instead of GAAP earnings. We expect a reduced dividend for the next quarter or two but hope to return to a stronger dividend policy in the near future.
Q: What factors contributed to the specific reserves of $5.5 million?
A: John Villano, CEO: The reserves reflect a re-underwrite of loans where borrowers are not in the same financial shape or properties did not lease up as expected. We are being realistic about the portfolio's net realizable value.
Q: Should we expect an increase in REO (Real Estate Owned) properties in the coming quarters?
A: John Villano, CEO: The issue is getting control of the properties through the foreclosure process. Once we get a property back, it is usually sold within a few weeks. The REO doesn't stick around for long, which is a testament to our underwriting.
Q: How does the allowance for reserves relate to property cash flows and LTVs (Loan-to-Value ratios)?
A: John Villano, CEO: It's a mixed bag. Some cases involve LTV issues, while others involve cash flow challenges. We are dealing with appraisal risks and banks' willingness to refinance. A steady policy from the Federal Reserve could help improve the situation.
Q: What is your approach to capital structure and leverage going forward?
A: John Villano, CEO: We are considering a more deleveraged balance sheet. We are not looking to grow the book of business at the expense of higher interest rates. Playing defense now will position us to be strong when the market improves.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
