Sachem Capital(SACH) - 2018 Q4 - Annual Report

Part I Business The company operates as a Connecticut-based REIT specializing in short-term, first-lien "hard money" real estate loans - The company operates as a Real Estate Investment Trust (REIT) since its 2017 tax year, requiring it to distribute at least 90% of its taxable income to shareholders annually[16] - Sachem specializes in short-term (1-3 years) "hard money" loans secured by first mortgage liens, primarily for real estate investors acquiring, renovating, or developing properties in Connecticut[17] - The company's primary business objective is to grow its loan portfolio while preserving capital to generate attractive risk-adjusted returns for shareholders, mainly through dividends[31][33] - In May 2018, the company secured a $35 million revolving credit facility from a consortium of lenders led by Webster Business Credit Corporation, replacing a smaller facility[22][69] Loan Portfolio Snapshot as of December 31, 2018 | Metric | Value | | :--- | :--- | | Total Loans Outstanding | 403 | | Aggregate Principal Amount | $78,891,110 | | Average Loan Size | ~$196,000 | | Loans ≤ $250,000 | ~79% of total loans | | Geographic Concentration (by principal) | ~89.5% in Connecticut | Risk Factors The company faces risks from real estate market downturns, interest rate fluctuations, and its geographic concentration in Connecticut - The business is highly sensitive to conditions in the mortgage and real estate markets, where an economic slowdown could lead to increased defaults and declining property values[94] - A high concentration of loans in Connecticut (approximately 89.5% of the portfolio) makes the company particularly vulnerable to adverse economic or real estate developments in that state[112] - Rising interest rates pose a risk as the company's credit facility has a floating rate (LIBOR-based), while its loans are fixed-rate, potentially squeezing the interest rate spread and reducing income[96] - The company's credit agreement contains financial covenants, including maintaining a minimum tangible net worth of $52 million, and failure to comply could lead to default[140] - To maintain its REIT status, the company must distribute at least 90% of its taxable income annually, which could limit its ability to retain earnings for growth[134][151] Unresolved Staff Comments The company has no unresolved comments from the SEC staff - There are no unresolved staff comments[166] Properties The company relocated its principal offices to a company-owned property in Branford, Connecticut in March 2019 - The company relocated its principal offices to 698 Main Street, Branford, Connecticut in March 2019[167] Legal Proceedings The company is not party to any material legal proceedings outside the ordinary course of business - The company is not currently involved in any material legal proceedings outside the ordinary course of business[168] Mine Safety Disclosure This section is not applicable to the company's operations - Mine Safety Disclosure is not applicable[169] Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The company's common shares trade on the NYSE American, and it pays regular dividends to maintain its REIT status - The company's Common Shares are listed on the NYSE American LLC under the symbol "SACH" since February 10, 2017[172] - As of March 28, 2019, there were 79 shareholders of record[174] Dividends Paid Per Share (2017-2019) | Payment Date | Amount Per Share | | :--- | :--- | | 2019 | | | January 10, 2019 | $0.17 | | 2018 | | | November 6, 2018 | $0.12 | | July 27, 2018 | $0.11 | | April 27, 2018 | $0.105 | | February 27, 2018 | $0.105 | | 2017 | | | November 17, 2017 | $0.105 | | July 27, 2017 | $0.105 | | April 27, 2017 | $0.05 | Selected Financial Data As a smaller reporting company, this section is not required - The company is a "smaller reporting company" and is not required to provide selected financial data[181] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant 2018 growth in revenue and net income, driven by an expanding loan portfolio and new financing - The company replaced its $20M Bankwell credit facility with a new $35M revolving credit facility from Webster Business Credit Corporation in May 2018 to support its lending operations[198] - Net cash from operating activities increased to $6.2 million in 2018 from $4.8 million in 2017, while net cash used for investing was $16.8 million, primarily for new loans[223][224] - In the first quarter of 2019, the company sold 511,635 common shares through its ATM offering, raising approximately $2.2 million in net proceeds[193][231] Financial Performance Comparison (2018 vs. 2017) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Total Revenue | ~$11.7 million | ~$7.0 million | | Net Income | ~$7.8 million | ~$4.9 million | | Total Operating Expenses | ~$3.9 million | ~$2.1 million | Loan Portfolio Growth (2018 vs. 2017) | Metric | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | Number of Loans | 403 | 337 | | Aggregate Loan Amount | ~$78.9 million | ~$63.3 million | | Non-Performing Loans (Principal) | ~$5.1 million (13 loans) | ~$2.2 million (12 loans) | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, this section is not required - The company is a "smaller reporting company" and is not required to provide quantitative and qualitative disclosures about market risk[237] Financial Statements and Supplementary Data This section presents the company's audited financial statements and accompanying notes for fiscal years 2018 and 2017 Balance Sheet Summary (as of Dec 31) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Total Assets | $86,014,050 | $67,494,537 | | Total Liabilities | $33,211,235 | $12,928,256 | | Total Shareholders' Equity | $52,802,815 | $54,566,281 | Statement of Operations Summary (Year Ended Dec 31) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Total Revenue | $11,713,370 | $6,996,877 | | Total Operating Costs | $3,941,585 | $2,136,029 | | Net Income | $7,771,785 | $4,860,848 | | Basic & Diluted EPS | $0.50 | $0.38 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on accounting and financial disclosure - There were no changes in or disagreements with accountants[239] Controls and Procedures Management concluded that the company's disclosure controls and internal controls over financial reporting were effective - Management concluded that as of December 31, 2018, the company's disclosure controls and procedures were effective[240] - Based on an evaluation using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2018[243] Other Information The company reports no other information for this item - No other information is reported[246] Part III Directors, Executive Officers and Corporate Governance The company details its board composition, executive leadership, and committee structure, emphasizing director independence - The Board has determined that directors Leslie Bernhard, Arthur Goldberg, and Brian Prinz are independent[257] - The company has three standing committees (Audit, Compensation, Nominating and Corporate Governance), each composed entirely of independent directors[258] Executive Officers and Directors | Name | Position | | :--- | :--- | | John L. Villano | Chairman, Co-CEO, CFO, Secretary | | Jeffrey C. Villano | President, Co-CEO, Treasurer, Director | | Leslie Bernhard | Director | | Arthur L. Goldberg | Director | | Brian A. Prinz | Director | Executive Compensation Executive compensation consists of base salaries for the Co-CEOs, with provisions for bonuses and severance - The Co-CEOs' employment agreements include a five-year term, a base salary of $360,000 per annum (effective April 1, 2018), and potential incentive compensation[269] - Non-employee directors receive annual cash compensation of $15,000, plus additional fees for committee chairmanships, and an annual grant of $2,500 in common shares upon re-election[273] Named Executive Compensation (2018) | Name | Position | Salary ($) | | :--- | :--- | :--- | | John L. Villano | Co-CEO, CFO | 310,500 | | Jeffrey C. Villano | Co-CEO, President | 310,500 | Security Ownership of Certain Beneficial Owners and Management and Related Shareholders Matters Management and directors beneficially own approximately 20.93% of common shares, with an equity plan in place for awards - The company's 2016 Equity Compensation Plan reserves 1,500,000 common shares for awards, with 1,477,116 shares remaining available as of December 31, 2018[280][281] Beneficial Ownership of Executive Officers and Directors (as of March 28, 2019) | Name | Percentage of Class | | :--- | :--- | | John L. Villano | 7.82% | | Jeffrey C. Villano | 10.99% | | All officers and directors as a group (5 persons) | 20.93% | Certain Relationships and Related Transactions and Director Independence The company discloses transactions with entities controlled by its Co-CEOs, including management fees and property leases - Prior to the IPO in February 2017, JJV, LLC, an entity owned by the Co-CEOs, received management and loan origination fees from the company's predecessor[291][292] - The company's loan portfolio includes loans made to JJV, LLC, with an outstanding principal balance of $879,000 as of December 31, 2018[294] - Until March 2019, the company paid $1,500 per month in rent to Union News of New Haven, Inc, an affiliate of Co-CEO Jeffrey C. Villano[293] Principal Accountant Fees and Services This section details fees paid to the principal accounting firm for 2018 and 2017, all pre-approved by the Audit Committee - The Audit Committee has a policy to pre-approve all audit and non-audit services to ensure auditor independence[298] Accountant Fees (Hoberman & Lesser, LLP) | Fee Type | 2018 | 2017 | | :--- | :--- | :--- | | Audit fees | $111,800 | $230,700 | | Audit related fees | - | - | | Tax fees | - | - | | All other fees | - | - | | Total fees | $111,800 | $230,700 | Part IV Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including material contracts and required certifications - Lists all exhibits filed with the report, including organizational documents, material contracts, and required certifications[301][302][304] Form 10-K Summary The company does not provide a summary for this item - No Form 10-K summary is provided[306]