On August 14, 2024, Sachem Capital Corp (SACH, Financial) released its 8-K filing detailing its financial results for the second quarter ended June 30, 2024. Sachem Capital Corp is a United States-based real estate investment trust specializing in originating, underwriting, funding, servicing, and managing a portfolio of short-term loans secured by first mortgage liens on real property located in Connecticut. The company aims to grow its loan portfolio while protecting and preserving capital to provide attractive risk-adjusted returns to shareholders through dividends.
Performance Overview
For the second quarter of 2024, Sachem Capital Corp reported total revenue of $15.1 million, falling short of the analyst estimate of $15.47 million. This represents a decrease from the $16.3 million reported in the same quarter of 2023. The company's net loss attributable to common shares was $4.1 million, or $0.09 per share, compared to net income of $4.8 million, or $0.11 per share, in the second quarter of 2023. This result also missed the analyst estimate of $0.04 loss per share.
Key Financial Metrics
Interest income for the quarter totaled $11.8 million, slightly down from $11.9 million in the same period last year. The decrease in interest income was primarily due to a lower number of loans originated, modified, or extended compared to the previous year. Fee income from loans, mainly comprising origination fees, decreased by approximately 37.2% year-over-year.
Total operating costs and expenses for the quarter were $18.5 million, a significant increase from $10.3 million in the same period of 2023. This rise was mainly due to an $8.5 million provision for credit losses, compared to just $94,000 in the second quarter of 2023. The increase in credit loss provisions reflects a more conservative approach to risk management amid uncertain market conditions.
Balance Sheet and Cash Flow
As of June 30, 2024, Sachem Capital Corp reported total assets of $586.3 million, down from $625.5 million at the end of 2023. Cash and cash equivalents stood at $10.6 million, while investments in partnerships were valued at $47.0 million. Net mortgages receivable for the quarter were $485.7 million. Total liabilities decreased to $356.2 million from $395.5 million at the end of 2023.
Total indebtedness at the end of the quarter was $338.9 million, including $259.9 million of unsecured notes payable, $55.0 million outstanding on the Needham Bank revolving credit facility, and $23.0 million on the Churchill master repurchase financing facility. The company plans to repay $34.5 million of unsecured unsubordinated notes due in December 2024 through refinancing or a combination of drawdowns on existing credit facilities, current cash on hand, and principal repayments of its mortgage loans.
Dividend and Shareholder Equity
On August 6, 2024, Sachem Capital Corp paid a quarterly dividend of $0.08 per share to shareholders of record on July 29, 2024. The company continues to operate and qualify as a Real Estate Investment Trust (REIT) for federal income taxes, requiring it to distribute a minimum of 90% of taxable income each year to its shareholders.
Total shareholders' equity at June 30, 2024, was $230.2 million, a slight increase from $230.1 million at the end of 2023. This change was primarily due to additional paid-in capital of $6.1 million, partially offset by an increase in accumulated deficit of $5.7 million and a decrease in accumulated other comprehensive income of $0.3 million.
Management Commentary
John Villano, CPA, Sachem Capital’s Chief Executive Officer, stated: “During the second quarter, we maintained our disciplined approach across our business by retaining cash, being selective with our lending, and exercising prudence in our borrowing. Specifically, in the second quarter we reduced the total amount of our indebtedness by $33.8 million, which includes a repayment of $23.7 million of unsecured unsubordinated notes. We will continue to build our platform and strengthen our balance sheet for the remainder of 2024 with a view towards growth in 2025 as accretive capital becomes available. Lastly, since our inception as a public company in February 2017, management has built a reliable and robust lending platform, paid an excellent stream of dividends and, most importantly, increased book value during some volatile market periods.”
Conclusion
Sachem Capital Corp's second-quarter results reflect the challenges faced in the current economic environment, particularly the significant increase in credit loss provisions. While the company has taken steps to reduce its indebtedness and maintain a disciplined approach to lending, the decrease in revenue and net income highlights the difficulties in achieving growth under these conditions. Investors will be closely watching how Sachem Capital Corp navigates these challenges in the coming quarters.
Explore the complete 8-K earnings release (here) from Sachem Capital Corp for further details.
