Sachem Capital(SACH) - 2021 Q1 - Quarterly Report

Part I FINANCIAL INFORMATION Financial Statements (unaudited) For the first quarter ended March 31, 2021, Sachem Capital Corp. reported total assets of $228.4 million, a slight increase from year-end 2020, with total revenue growing to $5.7 million from $4.3 million year-over-year, driven by higher interest income, while net income remained flat at $2.2 million, or $0.10 per share, due to a significant increase in interest and operating expenses, and cash flow from operations was $2.8 million, while investing activities used $2.1 million Balance Sheets As of March 31, 2021, total assets increased slightly to $228.4 million from $226.7 million at December 31, 2020, primarily driven by an increase in mortgages receivable to $156.8 million, while total liabilities decreased to $143.8 million, mainly due to the payment of accrued dividends, and shareholders' equity grew to $84.6 million from $80.9 million Balance Sheet Highlights (unaudited) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $18,345,654 | $19,408,028 | | Mortgages receivable | $156,771,704 | $155,616,300 | | Total assets | $228,432,452 | $226,670,184 | | Liabilities & Equity | | | | Notes payable (net) | $109,884,797 | $109,640,692 | | Line of credit | $28,160,988 | $28,055,648 | | Total liabilities | $143,790,733 | $145,750,644 | | Total shareholders' equity | $84,641,719 | $80,919,540 | Statements of Comprehensive Income For the three months ended March 31, 2021, total revenue increased by 32.5% to $5.7 million, compared to $4.3 million in the same period of 2020, primarily due to a 56.2% rise in interest income from loans, but net income slightly decreased to $2.18 million from $2.24 million, as operating costs, particularly interest expenses, rose by 70.2%, while basic and diluted EPS remained unchanged at $0.10 Q1 2021 vs Q1 2020 Income Statement (unaudited) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total revenue | $5,712,181 | $4,312,302 | | Interest income from loans | $4,531,232 | $2,901,406 | | Total operating costs and expenses | $3,529,080 | $2,073,688 | | Interest and amortization | $2,464,755 | $1,149,953 | | Net income | $2,183,101 | $2,238,614 | | Basic and Diluted EPS | $0.10 | $0.10 | Statements of Changes in Shareholders' Equity Shareholders' equity increased from $80.9 million at the beginning of the year to $84.6 million as of March 31, 2021, driven by $2.2 million in net income and $1.5 million from the sale of common stock through an at-the-market (ATM) offering - The company sold 303,407 common shares through its ATM program, raising approximately $1.54 million in capital during Q1 2021[18] - Net income of $2.18 million for the period contributed to the increase in total shareholders' equity[18] Statements of Cash Flow For the first quarter of 2021, net cash provided by operating activities was $2.8 million, an increase from $1.7 million in Q1 2020, while net cash used for investing activities was significantly lower at $2.1 million compared to $16.2 million in the prior-year period, reflecting a better balance between loan disbursements ($31.7 million) and collections ($30.5 million), and financing activities used $1.8 million, resulting in a net decrease in cash of $1.1 million Cash Flow Summary (unaudited) | Cash Flow Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $2,789,056 | $1,727,381 | | Net Cash Used for Investing Activities | ($2,071,118) | ($16,221,817) | | Net Cash Used for Financing Activities | ($1,780,312) | ($2,721,479) | | Net Decrease in Cash | ($1,062,374) | ($17,215,915) | | Cash and Cash Equivalents - End of Period | $18,345,654 | $1,626,022 | Notes to Financial Statements (unaudited) The notes detail the company's business as a 'hard money' lender, its accounting policies including its REIT status, and specifics on its financial accounts, with key details including a mortgage portfolio of $156.8 million with interest rates from 5.0% to 13.0%, and outstanding debt of $109.9 million in unsecured notes, and the company also disclosed its response to COVID-19, which included a temporary forbearance program and stricter lending criteria in 2020, which have since been normalized, with subsequent events including further ATM stock sales and executive compensation changes - The company specializes in short-term (one to three years), secured, non-banking loans ('hard money' loans) to real estate investors, primarily in Connecticut[23] - The company believes it qualifies as a Real Estate Investment Trust (REIT) and elected this status for its 2017 tax return, requiring it to distribute at least 90% of its taxable income annually[38] Mortgage Loan Portfolio Details (as of March 31, 2021) | Metric | Value | | :--- | :--- | | Total Outstanding Principal | $156,771,704 | | Number of Loans | 479 | | Stated Interest Rate Range | 5.0% to 13.0% | | Loans in Foreclosure | 12 | | Aggregate Balance in Foreclosure | ~$2.6 million | Outstanding Notes Payable (as of March 31, 2021) | Series | Principal Amount | Interest Rate | Maturity Date | | :--- | :--- | :--- | :--- | | June 2024 Notes | $23,663,000 | 7.125% | June 30, 2024 | | December 2024 Notes | $34,500,000 | 6.875% | December 30, 2024 | | 2025 Notes | $56,363,750 | 7.75% | December 30, 2024 (Note: Text says 2025 Notes but maturity is Dec 30, 2024) | - In response to COVID-19 in early 2020, the company implemented a temporary forbearance program and a moratorium on new loan funding, which were canceled by the third quarter of 2020 as economic conditions stabilized[77] - Subsequent to quarter-end, between April 1 and May 4, 2021, the company sold 2,045,336 common shares in ATM offerings, realizing net proceeds of $10.5 million[74] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 32.5% Q1 revenue growth to expanded lending activities, but a 70.2% increase in operating costs, mainly from interest on increased debt, caused a slight dip in net income, with the primary challenge being deploying its $54.7 million in cash and investments efficiently to grow the loan portfolio and offset interest expenses, and the company faces increased competition and yield compression but aims to counter this by funding larger loans and expanding geographically, while its capital structure is 63% debt, primarily fixed-rate notes, which provides operational flexibility, and the company continues to operate as a REIT - Compared to Q1 2020, revenue increased 32.5%, but net income decreased 2.5% due to a 70.2% increase in operating costs, primarily interest expense from higher debt levels[84] - The company's primary objective is to grow its loan portfolio by focusing on larger-value commercial loans and expanding its geographic footprint beyond Connecticut, with an emphasis on Florida and Texas[85][99] - The company faces challenges from increased competition from private equity and hedge funds, leading to borrower-friendly terms and yield compression. The portfolio yield was 11.73% in Q1 2021, down from 12.16% in Q1 2020[90][91][103] - As of March 31, 2021, the company's capital structure was 63.0% debt and 37.0% equity. The weighted average interest rate on its $114.5 million of unsecured notes is 7.36%[96][101] Results of Operations Comparing Q1 2021 to Q1 2020, total revenue rose by $1.4 million (32.5%), driven by a $1.6 million increase in interest income, while total operating costs increased by approximately $1.4 million (70.2%), with interest and amortization of deferred financing costs accounting for the entire increase, leading to net income remaining flat at $2.2 million for both periods Q1 2021 vs Q1 2020 Performance | Metric | Q1 2021 | Q1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | ~$5.7M | ~$4.3M | +32.5% | | - Interest Income | ~$4.5M | ~$2.9M | +56.2% | | Total Operating Costs | ~$3.5M | ~$2.1M | +70.2% | | - Interest & Amortization | ~$2.5M | ~$1.1M | +114.3% | | Net Income | ~$2.2M | ~$2.2M | ~0% | Liquidity and Capital Resources At March 31, 2021, the company held $54.7 million in cash, cash equivalents, and investment securities, with total assets growing by $1.8 million during the quarter to $228.4 million, while total liabilities decreased by $2.0 million to $143.8 million, and shareholders' equity increased by $3.7 million to $84.6 million, bolstered by stock sales and net income, and the company believes current cash and anticipated cash flows are sufficient to fund operations for the next 12 months - Cash, cash equivalents, and investment securities totaled approximately $54.7 million at March 31, 2021[124] - Shareholders' equity increased by $3.7 million in Q1 2021, primarily due to $1.5 million from stock sales and $2.2 million in net income[128] - Net cash from operating activities was $2.8 million, while investing activities used $2.1 million and financing activities used $1.8 million[129][130][131] Contractual Obligations As of March 31, 2021, the company had total contractual obligations of $23.5 million, with the vast majority, $23.49 million, consisting of unfunded loan commitments due within one year, and a minor portion, approximately $8,000, relating to operating lease obligations Contractual Obligations as of March 31, 2021 | Obligation Type | Total | Less than 1 year | 1 – 3 years | | :--- | :--- | :--- | :--- | | Operating lease obligation | $8,031 | $2,888 | $5,143 | | Unfunded loan commitments | $23,489,412 | $23,489,412 | $0 | | Total | $23,497,443 | $23,492,300 | $5,143 | Quantitative and Qualitative Disclosures about Market Risk The company is a smaller reporting company and, as such, is not required to provide the information for this item - As a smaller reporting company, Sachem Capital Corp. is not required to provide quantitative and qualitative disclosures about market risk[143] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of March 31, 2021, and concluded they were effective, with no material changes to the company's internal control over financial reporting during the quarter - Management concluded that as of March 31, 2021, the company's disclosure controls and procedures are effective[144] - No changes in internal control over financial reporting occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[145] Part II OTHER INFORMATION Exhibits This section lists the exhibits filed with the Form 10-Q, including documents related to corporate governance, debt indentures, employment agreements, and required certifications under the Sarbanes-Oxley Act, as well as XBRL interactive data files - The exhibits include the CEO and CFO certifications required under Section 302 and 906 of the Sarbanes-Oxley Act[148] - Key filed documents include indentures for the company's various note series (7.125% due 2024, 6.875% due 2024, 7.75% due 2025) and employment agreements for executive officers[148] Signatures The report is duly signed and authorized on May 14, 2021, by John L. Villano, in his capacity as President, Chief Executive Officer, and Chief Financial Officer - The Form 10-Q was signed on May 14, 2021, by John L. Villano, President, CEO, and CFO[156]