Sachem Capital(SACH) - 2025 Q2 - Quarterly Results

S&P Global Market Intelligence Estimates This section provides consensus financial estimates for FY2025 and FY2026, alongside a comparison of historical GAAP EPS against consensus figures FY2025 & FY2026 Consensus Estimates (as of Jul-09-2025) | Metric | FQ2 2025 Consensus | FY 2025 Consensus | FY 2026 Consensus | | :--- | :--- | :--- | :--- | | EPS (GAAP) | $0.01 | $0.03 | NA | | Revenue (million) | $11.30 | $45.12 | NA | Historical EPS (GAAP) vs. Consensus | Quarter | Consensus | Actual | Surprise | | :--- | :--- | :--- | :--- | | FQ2 2024 | $0.12 | ($0.09) | NM | | FQ3 2024 | $0.10 | ($0.13) | NM | | FQ4 2024 | ($0.47) | ($0.79) | NM | | FQ1 2025 | ($0.06) | $0.00 | NM | Call Participants Key executives led the call, with analysts from various firms participating in the subsequent Q&A session - The call was led by John L. Villano, Founder, Chairman, President & CEO, and Jeffery C. Walraven, Interim CFO & Director[6] - Analysts from Citizens JMP Securities, Ladenburg Thalmann & Co. Inc., and Alliance Global Partners participated in the Q&A session[6] Presentation The presentation covers strategic financial strengthening, portfolio performance, macro-economic outlook, detailed financial results, and updates on liquidity and capital resources Opening Remarks & Strategic Progress Sachem Capital focused on strengthening its financial position in Q2 2025, highlighted by the closing of a new $100 million senior secured note facility, intended to repay existing debt and fund new accretive loan originations, leading to asset growth for the first time in five quarters - The company continued efforts from late 2024 and early 2025 to protect its balance sheet, leading to stabilization in the second quarter[12] - A new $100 million senior secured notes offering due June 2030 was closed to provide financial flexibility[12] - The new financing enabled the company to repay existing obligations and accelerate new loan originations, resulting in asset growth for the first time in 5 quarters[12] Portfolio Performance and Key Exposures The company is actively managing its nonperforming loans (NPLs), which stood at $119.6 million gross, with a significant portion tied to a single borrower in South Florida, while also providing updates on development projects and investments that generated $1 million in revenue, as book value per share saw a slight decrease to $2.54 Nonperforming Loans (NPLs) as of Q2 2025 | Metric | Q2 2025 (June 30) | Q1 2025 (March 31) | | :--- | :--- | :--- | | Gross Unpaid Principal | $119.6 million | $107.6 million | | Net NPLs | $107.0 million | $94.3 million | - A single borrower in South Florida represents a significant exposure, with two cross-collateralized loans totaling approximately $50.4 million, accounting for 42.1% of the total NPL balance[14] - Book value per share was $2.54 as of June 30, 2025, a slight 1.2% decrease from $2.57 at the end of Q1 2025[14][30] - Investments totaling $41.2 million in projects managed by Shem Creek Capital generated approximately $1 million in revenue for the second quarter[19] - Development projects with partner Urbane New Haven are progressing on schedule, including a Westport office/residential asset and three high-end homes in Florida[18] Macro Environment and Outlook The company operates in a challenging macro environment with high interest rates dampening housing demand, yet these conditions create opportunities for selective lenders like Sachem as traditional financing remains constrained, allowing the company to maintain a disciplined underwriting approach focused on experienced sponsors, with post-COVID loan originations performing well - The macro environment is challenging, with elevated interest rates dampening demand in the single-family housing market and increasing costs for developers[20][21] - These challenges create opportunities for Sachem, as traditional lenders like banks face constraints, leading to a pipeline of new origination opportunities that exceeds the company's current capacity[21][22] - Sachem remains committed to a disciplined underwriting approach, emphasizing highly experienced and creditworthy sponsors, and notes that its post-COVID era loan originations are performing exceptionally well[22] Financial Results (CFO's Report) For Q2 2025, Sachem reported total revenue of $10.8 million and a GAAP net income of $1.9 million, or $0.02 per share attributable to common shareholders, which compares favorably to a net loss in the prior year, driven by a significant reduction in the provision for credit losses, with total assets growing to $501.8 million and the company's debt-to-equity ratio standing at 1.8x Q2 2025 Financial Performance vs. Q2 2024 | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Total Revenue | $10.8 million | $15.1 million | | Total Operating Expenses | $9.7 million | $18.3 million | | Provision for Credit Losses | -$7.6 million (decrease) | - | | GAAP Net Income | $1.9 million | ($4.1 million loss) | | Net Income per Common Share | $0.02 | ($0.09) | Balance Sheet Summary (as of June 30, 2025) | Metric | Value | | :--- | :--- | | Total Assets | $501.8 million | | Total Liabilities | $323.9 million | | Shareholders' Equity | $177.9 million | | Debt-to-Equity Ratio | 1.8x | - The loan portfolio consisted of 135 first mortgage loans with an unpaid principal balance of $382.1 million and a net carrying value of $364.5 million after a $17.6 million allowance for credit losses[28] Liquidity, Capital Resources, and Dividends The company's liquidity position is solid, with cash increasing to $22.5 million, and a new $100 million private placement of senior secured notes enhances capital resources, with an initial $50 million drawn, as Sachem plans to repay $56.3 million in notes maturing in September 2025 using existing credit facilities and cash from loan repayments, while the dividend policy is under regular evaluation - Cash and cash equivalents increased to $22.5 million from $18.1 million at the start of the year[30] - Completed a $100 million private placement of 5-year senior secured notes, drawing an initial $50 million at closing with the remaining $50 million available until May 2026[31] - The company expects to fully repay $56.3 million in notes maturing at the end of September 2025 using existing credit facilities and cash from loan repayments[32] - The Board of Directors regularly evaluates the dividend distribution policy, and has aligned the timing of common and preferred dividend declarations and payments to March, June, September, and December[33] Question and Answer The Q&A session addressed LLC investment performance, REO resolution velocity, the impact and resolution efforts for the Naples non-accrual loan, and details on financing and new loan origination strategies Discussion on LLC Investments and REO Management addressed a dip in LLC income, attributing it to timing differences in cash flow waterfalls from Shem Creek investments, but reiterated a low double-digit return outlook, also discussing the Urbane development pipeline, which was slowed in 2024 but is a focus for future growth, and regarding REO, while the balance appears flat, there has been underlying activity, and management expects the velocity of NPL and REO resolutions to accelerate in the second half of the year - The dip in income from Shem Creek investments was due to timing differences in cash flow waterfalls, with the overall investment still expected to generate a low double-digit (10-12%) return on the $41.2 million invested[41][43][44] - The company plans to rebuild the Urbane project pipeline to have projects completing on a rolling quarterly basis, a goal that was slowed during a difficult 2024[46] - Management expects the velocity of NPL and REO resolutions to accelerate in the second half of the year, with an anticipated $12.5 million in additional resolutions expected in Q3[49] Discussion on Naples Loan and Asset Quality The significant Naples non-accrual loan, with a net book value of $50.4 million, is impacting earnings by approximately $450,000 per month, with a mediation event scheduled and the company optimistic about a resolution, while management confirmed that, excluding this major loan, the portfolio's asset quality is stabilizing as they actively "cleanse" the portfolio of weaker loans - The large Naples non-accrual loan has a net book value of $50.4 million and is creating an opportunity cost that negatively impacts earnings by approximately $450,000 per month[53][55] - A mediation event regarding the Naples loan was scheduled for the week of the call, with the company working towards a resolution[53][54] - Management confirmed that overall asset quality trends are stabilizing as the company actively works to "cleanse the portfolio" by not extending weaker loans and pushing them towards resolution[56] Discussion on Financing and Loan Origination Management clarified that the remaining $50 million from the new note offering is available for either repaying maturing notes or funding growth, depending on loan payoffs, and in Q2, the company disbursed $39.7 million in new loans and draws while receiving $23.7 million in repayments, maintaining disciplined pricing aiming for yields of 12% interest plus 2 points on new originations - The undrawn $50 million from the new senior notes facility is available for either repaying notes maturing in September or for funding new growth, depending on loan payoffs during the quarter[60] Q2 2025 Loan Activity | Activity | Amount | | :--- | :--- | | New Loan Disbursements & Draws | $39.7 million | | Loan Repayments | $23.7 million | - The company is maintaining its target pricing on new loans at 12% interest and 2 points, occasionally going down to 11% but not below 10%[62]